Consumption Still in the Driver's Seat for GDP

Real GDP growth in 2Q15 was revised from 2.3% QoQ SAAR to 3.7%
Nonresidential investment crossed back into positive territory despite weakness in energy
Robust 2Q GDP doesn’t offset recent volatility in financial markets in Fed’s mind

The second estimate for 2Q15 real GDP growth was revised up to 3.7% QoQ SAAR from the initial 2.3% pace. Most major components shifted upward, with nonresidential investment reflecting the biggest improvement, up 3.2% compared to a 0.6% contraction in the first estimate. Despite the 68.3% drop in mining exploration, strength in manufacturing and power and communication pulled investment in structures into positive territory, though equipment remained slightly negative for the quarter. Unfortunately, the renewed decline in oil prices limits potential growth in nonresidential investment throughout the rest of this year and into 2016 as well.

On the bright side, oil prices appear to be having a positive impact on consumers as personal consumption expenditures continue to drive GDP growth. PCE was revised up from 2.9% to 3.1% on account of stronger demand for goods (mostly autos and recreational goods) as the start of summer gave way to improved confidence and expectations. This robust growth should continue into the second half of the year, helping to fuel above 3.0% growth in the third and fourth quarters.

Although this revised GDP report is a welcome surprise in a sea of economic uncertainty, the data are not likely to have much of an impact on the upcoming Federal Reserve rate hike decision. The lagged 2Q15 GDP data merely confirm a strong rebound from the weak first quarter but do not change the volatility we have seen in recent weeks. The Fed continues to see risks as tilted to the downside, mostly stemming from global concerns, and even though domestic activity has improved, our economy remains vulnerable to outside shocks. These risks to growth will be important to monitor as we move through the second half of this year, holding onto our expectations for 2.5% growth in 2015.

Share: Analysis feed

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.