The United States economy grew at an annual rate of 2.4 percent in the second quarter according to government estimates released this morning. The figure was slower than the two previous quarters and stirred concern that the country’s economic recovery could be flagging.
The drop in GDP, which had grown at 3.7 percent in the opening three months of the year, largely was due to a worsening trade imbalance and less business investment in inventories, a category of spending that usually begins to accelerate during periods when the economy is emerging from a downturn.
Private inventories, the materials or goods that manufacturers or businesses stock in anticipation of either making or selling more goods to meet consumer demand, added 1.05 percent to GDP in the second quarter, less than the 2.64 percent it accounted for in the first three months of the year.
The export of goods and services meanwhile increased by 10.3 percent in the second quarter after rising by 11.4 percent in the first as imports, which subtract from economic growth, rose by 28.8 percent after growing at a more modest 11.2 percent in the first quarter.
Consumer spending, the chief driver of GDP, also fell quarter over quarter. Personal consumption rose 1.6 percent in the second quarter, compared to a 1.9 percent increase in the first quarter. Personal outlays, a broader category of spending, rose by $36.6 billion, or 1.4 percent in the second quarter after growing more briskly, by $98.2 billion, or 3.8 percent, in the first quarter.
Still the data, which was produced by the U.S. Department of Commerce, wasn’t all gloomy. Economic growth in the first quarter of the year was revised up from original estimates to 3.7 percent.
The report also showed that non-residential fixed investment, a key category of spending that largely signifies the expenditures made by businesses on equipment, facilities and software, increased by 17.0 percent in the second quarter, significantly higher than the 7.8 percent increase in the first.
Concerns have been building that the economic recovery, despite low interest rates and hundreds of billions of dollars of government stimulus spending that prevented the country from slipping into another depression, hasn’t been strong enough to add back a significant portion of the millions of jobs that have been shed. With so many unemployed, Ken McCarthy, an economist at the real estate services firm Cushman & Wakefield said that growth will rely more heavily on business spending.
“If you look at consumer spending, that’s slowed and it’s the biggest difference from the first quarter along with the fact businesses seem to now be more cautious in hiring,” McCarthy said. “In this recovery, business spending is going to be much more important. In past recoveries, consumers led the way but people have less ability to do that this time because their balance sheet has deteriorated, house prices are down so they can’t monetize the value of their homes through home equity loans to support spending.”
McCarthy said that he felt the economy was on track towards recovery but that over-leveraged commercial real estate assets were still a significant headwind because the loans tied to them remain on lenders’ balance sheets and have prompted many to pull back lending.
“There’s still a lot of loans coming due in the next two to three years on buildings bought at the height of the market and there are questions whether they can be refinanced,” McCarthy said. “These debt issues still need to still be resolved and I think it’s a headwind to the turnaround. But I still think overall we’re on a path towards recovery.”