Reconciling the Contradictions of U.S. GDP Data

The second-quarter U.S. gross domestic product data released Friday had something for everyone. Optimists could draw comfort from the robust growth in household consumption. Pessimists would worry about lagging business investment and mounting inventories. And if you are concerned about what is ahead for the world’s economic powerhouse, you would wonder how to reconcile these divergent trends.

Consumer household spending expanded by an impressive 4.2 percent in the second quarter of 2016, buoyed by (in order of importance) the solid job creation of recent years, easier credit availability, slightly stronger wage growth and higher financial and housing wealth. Yet even though consumption accounts for a significant part of the economy, such robust numbers weren't sufficient to offset a notable disappointment in the GDP headline number. Overall, economic growth came in at an annualized rate of 1.2 percent, well below consensus expectations of about 2 percent. This was even more disappointing given that the second-quarter data was expected to show a proper bounce back from even weaker first-quarter growth of 0.8 percent.