According to a Commerce Department report, the United States’ gross domestic product’s (GDP) growth in the second quarter was a lot less than analysts had expected: just 1.2 percent. Economists believe that weak investments offset the nation’s rebounding consumer spending.
Analysts expect U.S. economy to grow 1 percent this year, which is the lowest performance in five years. Economists calculated that the nation’s economy has expanded just 2.1 percent per year on average since the Great Financial Crisis, marking the slowest pace of recovery since the end of World World II.
The latest report, however, is at odds with other metrics. The Labor Department’s reports show a revival of the labor market with unemployment standing at 4.9 percent, wages are also steadily climbing, while the housing market shows signs of recovery.
Plus, consumer spending topped expectations with a 4.2 percent increase in the last quarter, which is the best reading in the last two years. By contrast, business investment shrank the third quarter in a row.
Economists said that the consumer spending rate is the only piece of good news in the latest GDP report. Experts explained that investments can become a major growth constraint factor.
Analysts hope for GDP growth to accelerate in Q3, but the slow start this year has already set 2016 on track to a disappointing year. S&P 500 companies aren’t faring better either. A Thomson Reuters report shows that the S&P companies will likely face more profit losses in the second quarter, marking the fourth straight quarter of profit declines.
JPMorgan Chase analysts are confident that recession risk will not go beyond 30 percent until June 2017. Their initial projection, which was issued shortly after the Brexit vote, was a 37 percent risk.
The recent report, however, should prompt presidential candidates to change their speeches on the status of U.S. economy and labor market. The figures could also become a reason of concern for the U.S. central bank which has recently announced that “near-term” risks for an interest rate hike have been reduced.
Economists caution that it is not a wise move to rise the benchmark interest rates in times of stalling economic growth. So, many of them called for better fiscal policies and structural reforms before even thinking about normalizing rates.
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