Declining inventories curb Q2 growth; consumption surges

Washington

US economic growth was a bit more sluggish than initially thought in the second quarter as businesses aggressively ran down stocks of unsold goods, offsetting a spurt in consumer spending.

Gross domestic product expanded at a 1.1 per cent annual rate, the Commerce Department said on Friday in its second estimate of GDP. That was slightly down from the 1.2 per cent rate it reported last month.

The revision, which was in line with economists' expectations, also reflected more imports than previously estimated as well as weak spending by state and local governments. The economy grew at a 0.8 per cent pace in the first quarter. It grew 1.0 per cent in the first half of 2016.

The economy has struggled to regain momentum since output started slowing in the last six months of 2015, which puts it in danger of stalling.

While data so far for the third quarter has been mixed, a buoyant labour market should continue to support consumer spending and underpin growth. Output will also likely get a boost as businesses restock warehouses after liquidating inventories in Q2.

The GDP data likely has no impact on the near-term outlook for monetary policy. The US Federal Reserve hiked interest rates at the end of last year for the first time in nearly a decade, but has held them steady since amid concerns over persistently low inflation. Most economists expect another rate hike in December.

The US dollar slightly trimmed losses against a basket of currencies after the data, while US stock futures were little changed. US Treasuries rose.

The government also reported that after-tax corporate profits fell at a 2.4 per cent rate last quarter after increasing at an 8.1 per cent pace in Q1. Weak profits could limit an anticipated rebound in business spending.

With profits declining, an alternative measure of growth, gross domestic income, or GDI, increased at only a 0.2 per cent rate in Q2, the weakest since Q1 of 2013. GDI measures the economy's performance from the income side. It increased at a 0.8 per cent pace in Q1. Reuters

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