Uptick in GDP pushed by consumer spending

July 31, 2015

WASHINGTON (7/31/15)--The U.S. real gross domestic product (GDP) increased at a 2.3% annual rate from April to June, according to the Commerce Department’s advance estimate, released Thursday.

The second-quarter increase reflected positive contributions from personal consumption expenditures, exports, state and local government spending, and residential fixed investment, the department said.

It also revised up its estimate for the first quarter, turning a 0.2% dip into 0.6% uptick, mostly because of stronger business investment and federal government spending.

The gross domestic purchase price index increased 1.4% in the second quarter compared with a 1.6% decrease in the first quarter. Real personal consumption expenditures increased 2.9%, and durable goods moved up 7.3% compared with first-quarter’s 2% increase. Consumers purchased vehicles at the fastest pace in nearly six years, said USA Today (July 30).

Excluding food and energy, inflation was 1.8%, up from 1% the prior two quarters.

“The economic recovery has lasted six years and shows no signs of old age,” said Scott Hoyt, Moody’s analyst ( July 30).

Hoyt cited strong, broad-based job growth, accelerating wage increases, low debt burdens, rising home prices and solid savings accounts. “More households are also set to form as millennials who delayed striking out on their own are increasingly in a financial position to do so,” he said. “Household formations, which had come to a virtual standstill in the wake of the recession, now appear to be over 1 million per year and headed to 1.5 million, at least temporarily. More households means more spending.”

The Federal Reserve could more likely boost the fed funds interest rate if July’s employment numbers are strong. “The second-quarter U.S. GDP data support the Fed’s more upbeat tone on economic conditions and suggests that the economy could cope with higher interest rates,” said Steve Murphy, U.S. economist at Capital Economics (MarketWatch July 30).