US GDP: Back to trend - Wells Fargo

Analysts from Wells Fargo, explained that today’s US Q2 GDP bounced back, with the help of solid consumer spending and business investment.

Key Quotes: 

“After the perennial residual seasonality issues and despite a negative inventory contribution, second quarter GDP returned to trend at 2.6 percent, annualized.”

“Underlying momentum for the economy is better gauged by real final sales to domestic purchasers, which also came in at 2.4 percent, a reflection of solid consumer spending and continued business equipment spending. The gains in consumer spending reflect the gains in disposable personal income of 3.2 percent.”

“Inflation, as measured by the PCE deflator, has registered soft performances over the prior four months and has grown just 1.6 percent, year over year. The figure reinforces the view that the price environment exhibits little upward momentum as we enter the second half of the year. The FOMC will have to grapple with flagging price pressures as they assess the appropriate path for monetary policy.”

“Looking ahead to the second half of the year, we expect GDP to accelerate slightly, averaging 2.5 percent. Continued job gains along with signs that real disposable income is accelerating is supportive of our view of stronger consumer spending in the second half of the year. Global economic data has been surprising to the upside, suggesting that domestic business investment is also likely to slowly accelerate in the second half of the year. Should our forecast for H2 hold, year-over-year GDP growth should expand at a 2.2 percent pace in 2017, faster than the 1.5 percent rate observed in 2016.”