US economic growth revised down to 1.1%

CHICAGO, IL - JULY 29: Consumers hold shopping bags as they walk along Michigan Avenue on July 29, 2016 in Chicago, Illinois. The US economy grew by 1.2% in the second quarter weaker than economists expected. (Photo by Joshua Lott/Getty Images)©Getty


The US economy grew at a slightly slower rate than initially forecast in the second quarter, underscoring a weak performance in the first half of 2016.

The economy expanded at an annualised rate of 1.1 per cent, rather than the predicted estimate of 1.2 per cent, the Department of Commerce said.

Consumer spending rebounded sharply in the three-month period to a growth rate of 4.4 per cent from 1.6 per cent in the first quarter.

However, a fall in inventories among businesses weighed heavily on gross domestic product, knocking the figure down by 1.3 percentage points. Investment was weak more broadly as energy groups cut back on capital spending on structures such as oil rigs in light of the decline in the price of crude. Residential investment, which encompasses new-home construction, also fell after several quarters of strong gains.

“Business investment remains soft, with structures investment continuing to reflect the lagged effects of declines in energy prices, and residential investment looks to have taken a breather after very strong growth throughout 2015,” Michael Gapen, chief US economist at Barclays, said.

The weakness in the second quarter capped a disappointing first half of 2016 for the biggest developed-market economy, which expanded at a slim 0.8 per cent rate in the first three months of the year.

Economists reckon the economy may have picked up steam more recently. Indeed, the growth rate has accelerated to 3.4 per cent in the third quarter, according to a running forecast by the Atlanta Federal Reserve.

In particular, the “drawdown in inventories is largely complete”, Mr Gapen said, noting that the category may “add modestly to growth in the coming quarters”.
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The more upbeat outlook for economic output that is coupled with a tightening labour market and signs that inflation is firming has increased expectations that the Fed may increase interest rates at least one time this year following the December 2015 rate rise.

Markets pin the odds of a 2016 rate rise at 55.8 per cent, according to federal funds futures, up dramatically from late June when the fierce reaction to the UK’s Brexit vote sent the probability plunging to essentially nil.

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