US GDP likely to have grown strongly in second quarter

In the first quarter, the US GDP growth had disappointed as consumer spending had grown at the weakest rate since the first quarter of 2014. However, the GDP is expected to have grown strongly in the second quarter of 2016. While prior first quarter were reports were weighed down by residual seasonality issues, the previous quarter’s slowdown was focused on weaker consumption and subdued investment in equipment. But real consumption is likely to have recovered strongly in the second quarter, whereas equipment spending is expected to have remained weak.

“We are expecting real PCE to advance by 4.1 percent annualized, which would mark the best quarter since Q4 2014”, said Societe Generale in a research report.

Real spending on goods in the first quarter had risen just 0.1 percent, partially because of a 1.6 percent drop in outlays for durable goods. Admittedly, real spending on durable goods averaged 1.6 percent per month in the first two months of second quarter after averaging a decline of 0.1 percent per month in the first quarter.

In the same manner, real outlays on services averaged only 0.06 percent every month in the first quarter; however, it averaged a gain of 0.3 percent in April and May. Meanwhile, business investment in equipment is likely to have dropped again; however the fall is expected to be less than t he 8.7 percent decline reported in the first quarter.

Shipments of non-defense capital goods orders excluding aircraft were quite flat in the second quarter following a drop of 11 percent in the first quarter. Meanwhile, net exports might have been little changed, whereas residential expenditures are expected to have remained a bright spot, rising 8 percent.

“Despite what we expect will be a solid rise in Q2 GDP, a reading in line with our estimate would leave the first half average at 2.2 percent, little changed from the 2.1 percent average pace seen since the recession ended”, added Societe Generale.