- Updated US GDP figures have shown that the economy grew by 2% annualized in Q2.
- Robust consumption outweighed a contraction in investment.
- The odds of a rate cut have grown and the dollar may struggle.
Headlines do not always tell the full story – and that is the story in today's US Gross Domestic Product report. The revised data for the second quarter has shown that the economy grew by 2.0% in the second quarter – a minor downgrade from 2.1% originally reported – but exactly as expected.
This is well within the "new normal" rate of growth – but looking under the hood reveals some issues.
The US consumer has borne the brunt of growth – 4.7% annualized against 4.3% in the initial read. Moreover, consumption has contributed 3.1% to overall growth.
On the other hand, home investment fell by 2.9% according to the new figures – almost double the initial release of 1.5%. Business investment fell by 0.6% – as originally reported – but confirming the first contraction since 2016.
Both components of investment dragged growth down by 1.1%, while other components such as trade and government spending balanced each other.
Fed set for looser monetary policy
The Federal Reserve convenes in three weeks and markets expect it to cut rates once again – and the case is stronger now. The Fed's horizon is the medium term – the next year to three years – and investment decisions taken now have an impact on the economy then. Despite upbeat consumption, high employment, and rising wages now – the future looks uncertain.
As mentioned earlier, business investment contracted for the first time since 2016. Back then, the central bank planned to raise rates four times but settled for one hike at the back end of the year. Weak investment numbers contributed to the Fed's hesitance back then – and may push the Washington-based institution to looser monetary policy in 2019 as well.
Markets have shrugged off the news due to the "as-expected" headline and the focus on trade headlines. However, the greenback has room to the downside.
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.