WASHINGTON: The US economy grew far less than expected in the second quarter as inventories fell for the first time since 2011, but a surge in consumer spending pointed to underlying strength.
GDP increased at a 1.2 percent annual rate after rising by a downwardly revised 0.8 percent pace in the first quarter, the US Department of Commerce said yesterday.
The US economy was previously reported to have grown 1.1 percent in the first quarter.
Economists polled by Reuters had forecast GDP growth rising at a 2.6 percent rate in the past quarter.
While the drop in inventories weighed on GDP growth last quarter, that is likely to provide a boost to output for the rest of the year.
The US Federal Reserve on Wednesday said that near-term risks to the economic outlook had “diminished.”
Consumer spending was responsible for almost all of the rebound in GDP growth in the second quarter.
The spending, which accounts for more than two-thirds of US economic activity, increased 4.2 percent.
That was the fastest pace since the fourth quarter of 2014.
That rate of growth is probably unsustainable, but economists said that a tightening labor market, rising house prices and higher savings should underpin spending for the rest of this year.
Inventory accumulation by businesses fell US$8.1 billion in the second quarter, the first drop since the third quarter of 2011, down from a US$40.7 billion increase in the first quarter.
As a result, inventory investment subtracted 1.16 percentage points from GDP growth in the past quarter.
It was the fourth straight quarter that inventories weighed on output.
However, the smaller inventory build is a good signal for growth in the coming quarters.
Despite the lingering effects of the US dollar’s rally and weak global demand, exports rose in the second quarter, helping to narrow the trade deficit.
Trade added 0.23 percentage point to GDP growth.
Business spending on equipment contracted for a third consecutive quarter, the longest stretch since the 2007 to 2009 recession, though the pace of decline slowed.
Business spending on equipment fell 3.5 percent after declining 9.5 percent in the first quarter.
There were also declines in investment in residential construction and spending by the government.
Economists said the decline was payback after strong gains in the first quarter.
