July 30, 2015

GDP growth slightly below Q2 expectations at 2.3%

Gross domestic product growth for the second quarter was slightly below expectations, ending at 2.3 percent, but first-quarter GDP growth was revised upward from -0.2 percent to 0.6 percent.

NAFCU Chief Economist and Director of Research Curt Long said the two taken together "paint a picture of moderate growth during the first half of the year." In a Macro Data Flash, Long noted that the overall improvement "confirms the Fed's view that much of the weakness from the first quarter was related to transitory factors like bad weather and the West Coast port strikes … The overall improvement in the economy will likely lead to a rate increase later this year."

Residential investment went up by 6.6 percent, consumer spending by 2.9 percent, and government spending by 0.8 percent in the second quarter. Nonresidential investment decreased by 0.6 percent. Long noted that the increase in consumer spending in particular helped the GDP rebound. Exports also increased by 5.3 percent, despite the strong dollar, which led to a smaller trade deficit.

The Fed's preferred inflation metric – core personal consumption expenditure (PCE) inflation, which excludes food and energy – increased from 1 percent in the first quarter to 1.8 percent in the second. Although this is still below the Federal Reserve's 2 percent goal, Long believes it increases the odds of an interest rate increase in September.

"The inflation figure is key as the Fed does not want to get too far behind the curve on price growth, as it would necessitate a steeper and more disruptive normalization path," Long said.