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What to Watch For in Friday’s G.D.P. Report U.S. Economy Grew by 2.1% in Second Quarter
(32 minutes later)
Economic growth probably slowed sharply last spring, but don’t panic — the decade-long expansion has lost some momentum, but there’s little reason to think it is about to stall out. Economic growth slowed last spring, but don’t panic — the decade-long expansion has lost some momentum, but there’s little reason to think it is about to stall out.
The Commerce Department will release its preliminary estimate of second-quarter economic growth at 8:30 a.m. Friday. Forecasters surveyed by MarketWatch expect the report to show that gross domestic product, the broadest measure of goods and services produced in the economy, rose at a 1.9 percent annual rate in the three months ending in June. That would be a significant deceleration from the 3.1 percent growth rate in the first quarter, and it would be the weakest reading in more than two years. Gross domestic product, the broadest measure of goods and services produced in the economy, rose at a 2.1 percent annual rate in the second quarter, the Commerce Department said Friday. That represents a significant deceleration from the 3.1 percent growth rate in the first quarter.
But the big swings in the quarterly data are almost certainly exaggerated. The larger trend shows that the economy has cooled since last year, when tax cuts and government spending gave growth a temporary jolt. But the strong job market and robust consumer spending are keeping the recovery on track, even as trade tensions and a slowing global economy are threatening to knock it off course.But the big swings in the quarterly data are almost certainly exaggerated. The larger trend shows that the economy has cooled since last year, when tax cuts and government spending gave growth a temporary jolt. But the strong job market and robust consumer spending are keeping the recovery on track, even as trade tensions and a slowing global economy are threatening to knock it off course.
Here’s what to watch for in Friday’s report. In addition to its estimate of second-quarter growth, the Commerce Department also revised G.D.P. data back to 2014. Such updates, which take place every summer, incorporate new data from the Internal Revenue Service, the Census Bureau and other sources that weren’t available when initial estimates were released.
Growth in the first quarter looked good on the surface, but the underlying details were much weaker. The pattern should reverse in the second quarter. Most economists expect the report to show that final demand — a measure of underlying growth that strips out some of the most volatile components — actually accelerated. Growth in the first quarter looked good on the surface, but the underlying details were much weaker. The pattern reversed in the second quarter. Final demand — a measure of underlying growth that strips out some of the most volatile components — actually accelerated.
The biggest factor: consumer spending, which accounts for more than two-thirds of the American economy. Stock market volatility, a prolonged government shutdown and harsh winter weather all contributed to weak spending early in the year. But consumer spending roared back in the spring. Many forecasters estimate that those purchases rose 4 percent or more, which would make this the best quarter in years. The biggest factor: consumer spending, which accounts for more than two thirds of the American economy. Stock market volatility, a prolonged government shutdown and harsh winter weather all contributed to weak spending early in the year. But consumer spending roared back in the spring, rising at a 4.3 percent rate.
“The consumer is going to be the savior of the report,” said Dan North, chief economist at Euler Hermes North America, an insurance company. Unfortunately, other parts of the economy look much weaker. Business investment slowed as manufacturers, in particular, were battered by tariffs and slowing demand from overseas. If that continues, it could slow hiring or even lead to layoffs, which would hurt consumer spending as well.
Unfortunately, other parts of the economy look much weaker. Economists expect Friday’s report to show that business investment was weak in the second quarter. Manufacturers, in particular, have been battered by tariffs and slowing demand from overseas. If that continues, it could slow hiring or even lead to layoffs, which would hurt consumer spending as well.
“There’s nothing that I can point to about the consumer and say I’m worried,” said Ellen Zentner, chief United States economist for Morgan Stanley. “But how long can business investment remain this sluggish without spilling over into jobs and the consumer?”“There’s nothing that I can point to about the consumer and say I’m worried,” said Ellen Zentner, chief United States economist for Morgan Stanley. “But how long can business investment remain this sluggish without spilling over into jobs and the consumer?”
In addition to its estimate of second-quarter growth, the Commerce Department on Friday will also revise G.D.P. data back to 2014. Such updates, which take place every summer, incorporate new data from the Internal Revenue Service, the Census Bureau and other sources that weren’t available when initial estimates were released. The second quarter of this year was the tenth anniversary of the end of the Great Recession. Assuming another downturn hasn’t already begun, this is now the longest expansion on record.
There’s pretty much no way to know what the revisions will show. They probably won’t change the overall picture, but they could alter some of the underlying trends — smoothing out some of the recent volatility, or perhaps making it look even more extreme. And they add uncertainty to estimates of the second quarter, since those forecasts are based on the soon-to-be-revised data. There are some signs that the record run could be nearing its end. Some forecasting models, particularly those based on the market for government bonds, have been flashing warning signs, and surveys show that economists think the risk of a recession in 2020 have been gradually rising.
“We all have our estimates of where the data is going to come in, but we are forecasting on data that’s about to change,” Ms. Zentner said. “Obviously, the headwinds are increasing,” said Joe Brusuelas, chief economist for RSM, a financial consulting firm. Europe is close to a recession or perhaps already in one. A trade deal with China looks to be months away at best. A flare up in the trade war could be enough to cause a recession, he said.
Friday’s report is one of the last major pieces of economic data before next week’s Federal Reserve meeting, when policymakers are widely expected to cut interest rates to try to stimulate the economy.
Even a big surprise on Friday would be unlikely to change the Fed’s mind. But it could affect how policymakers think about the need for further cuts this year — something investors expect but Fed officials have yet to commit to.
There are also political implications. A weak report on Friday would make it far less likely that growth for the year will top 3 percent, as President Trump has promised. And it would undermine Republican arguments that the tax cuts they passed in 2017 have given the economy long-term momentum, rather than merely a short-term bump. A strong report, on the other hand, could bolster Mr. Trump’s case for re-election.
The second quarter of this year was also the 10th anniversary of the end of the Great Recession. Assuming another downturn hasn’t already begun, this is now the longest expansion on record.
There are some signs that the record run could be nearing its end. Some forecasting models, particularly those based on the market for government bonds, have been flashing warning signs, and surveys show that economists think the risk of a recession in 2020 has been gradually rising.
“Obviously, the headwinds are increasing,” said Joe Brusuelas, chief economist for RSM, a financial consulting firm. Europe is close to a recession or perhaps already in one. A trade deal with China looks to be months away at best. A flare-up in the trade war could be enough to cause a recession, he said.
On the other hand, this week’s budget deal between the Trump administration and Congress eased the risk of another government shutdown or a standoff over the debt ceiling. And if the United States and China were to reach a deal this fall, that could give the expansion a new life, Mr. Brusuelas said.On the other hand, this week’s budget deal between the Trump administration and Congress eased the risk of another government shutdown or a standoff over the debt ceiling. And if the United States and China were to reach a deal this fall, that could give the expansion a new life, Mr. Brusuelas said.
“Once that uncertainty is off the table, you’ll see a release of demand,” he said.“Once that uncertainty is off the table, you’ll see a release of demand,” he said.
Friday’s report is one of the last major pieces of economic data before next week’s Federal Reserve meeting, when policymakers are widely expected to cut interest rates in an effort to stimulate the economy.
The report is unlikely change the Fed’s mind. But it could affect how policymakers think about the need for further cuts later this year — something investors expect but that Fed officials have yet to commit to.