Written by: Frank Fazio
The U.S. Commerce Department released their first estimate of GDP for the Second Quarter (Q2) 2017, with economic growth picking up relative to the First Quarter. GDP rose at an annual rate of 2.6% for the quarter, which was inline with analyst expectations. This was a rebound from Q1, where the economy grew at a 1.2% pace and confirms that the slowdown to start the year was temporary. At eight years and counting, the current economic expansion period is now the third longest since 1945. However, GDP has only averaged 2% since the recovery began back in 2009, which is the slowest expansion since World War II. In contrast, the longest economic expansion occurred between 1991-2001, which averaged 3.6% growth during that time period.
Personal consumption and business investment drove economic growth in Q2. In fact, consumer spending grew nearly 3% in the quarter after only a 1.9% gain in Q1. Business investment rose at an 8.2% pace, which is the strongest in nearly two years. This may signal that companies are optimistic about demand from both here in the U.S. as well as overseas markets. Residential investment was the main drag on economic growth during this past quarter after being a top contributor to growth in Q1. Builders are coping with a shortage of land and a tight housing supply, with the warmer-than-usual winter weather pulling in activity that may have been earmarked for the spring.
Earlier this week, the Conference Board reported that consumer confidence rose to its second highest reading since 2000 buoyed by a strong labor market. Earnings season continues to surprise to the upside, as more than half of the companies in the S&P 500 Index have reported results so far with nearly 80% of them beating estimates. These results coupled with the increase in GDP should provide the Federal Reserve with confirmation that the economy is on a solid growth path that can withstand higher rates. Furthermore, it should allow them to begin implementing their plan to shrink the size of their balance sheet in the coming months.