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Economic Watch: GDP Growth Improves Just Slightly

June 28, 2016

By Evan Lockridge

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U.S. economic growth improved more than previous estimates, but not by much, according to the latest GDP figures reelases by the Commerce Department June 28. Stronger net exports and business investment offset an unexpected downward revision to consumer spending.

The 1.1% annual increase in the gross domestic product compares to a 0.8% estimated rate a month ago and 0.5% estimated in April. The latest figure is also better than a consensus estimate of Wall Street analysts that was forecasting a 1% increase in the nation’s total output of goods and services.

Despite the upward revisions, this latest GDP rate is down from its 1.4% pace in the final quarter of 2015, following rates of 2% and 3.9% in the third and second quarters of last year. However, it's better than the first quarter 2015 rate of 0.6%.

Consumer spending growth was revised down to 1.5% from 1.9% previously. According to RBC Economics, the latest figure continues a pattern of weak consumer spending in the first quarter of each of the last three years, which may reflect measurement issues rather than an underlying slowdown in spending. RBC believes consumer spending is poised to rebound to a 3.5% pace in the second quarter.

The report also revised exports higher, with net trade adding growth to the overall GDP figure rather than being a drag as it was previously, marking the first positive contribution from net trade since the second quarter of last year.

“With today’s upward revision to the first quarter GDP and evidence in hand of a consumer-led rebound in second quarter, we expect growth averaged a near-trend 2% annualized pace in the first half of 2016,” said RBC Economist Josh Nye. “Recent payroll figures have raised questions about the durability of consumer spending, but we expect the slowdown is overstated and look for job growth to rebound in June before settling at a pace of around 125,000 per month in the second half of 2016."

He cautions there is potential for Brexit-related global uncertainty to weigh on already-soft business investment, while exports could be hampered by renewed strength in the U.S. dollar. “However, a solid domestic backdrop and supportive monetary policy are expected to prevent the first quarter slowdown from continuing going forward.”

According to Reuters, last week Federal Reserve Chair Janet Yellen noted second quarter economic growth has so far indicated a “noticeable step-up,” with the Atlanta Federal Reserve forecasting second quarter GDP growth of 2.6%.

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