- US GDP expanded at a 1.5% annualized rate in Q2, below the 1.8% consensus forecast.
- The miss raises questions about the pace of economic recovery and may influence Fed policy expectations.
- Analysts point to potential drags from inventories and net exports, while consumer spending remains resilient.
Weaker Than Expected
The US economy grew at a slower pace than anticipated in the second quarter, with gross domestic product rising at an annualized rate of 1.5%, according to the Bureau of Economic Analysis. That compares with a consensus estimate of 1.8% among economists surveyed by Bloomberg.
“The data shows some softening, though not a collapse,” said a senior economist at a major bank, speaking on condition of anonymity. “We need to see the details on consumer spending and inventories.”
Market Reaction
Treasury yields edged lower following the release, as traders priced in a lower probability of aggressive Federal Reserve rate hikes. The S&P 500 opened modestly lower, with losses led by cyclical sectors. “A miss like this could keep the Fed on hold,” said a portfolio manager at a New York-based asset manager.
Component Breakdown
Preliminary figures suggest that personal consumption expenditures remained solid, increasing 2.0% in the quarter. However, a sharp drawdown in private inventories subtracted roughly half a percentage point from growth, while a widening trade deficit also weighed on the headline. Business investment in equipment and structures was mixed, with intellectual property products showing strength.
“It’s a noisy quarter,” the economist added. “We’ll get a clearer picture as revisions come in.”
Outlook
Economists will now focus on monthly data for July and August to gauge whether the slowdown is temporary or marks the start of a broader deceleration. The Atlanta Fed’s GDPNow tracker, which updates in real time, is currently indicating a 2.3% pace for the third quarter. The next major test for markets will be the July nonfarm payrolls report due next week.