The Bureau of Economic Analysis announced that real gross domestic product (GDP) rose 1.5 percent in the second quarter. This is below the revised 4.1 percent and 2 percent growth rates experienced in the two prior quarters respectively.
From the manufacturing perspective, these numbers reflected a significant slowing in the consumption of goods, particularly durables. In the first quarter, the consumer was the primary driver of growth, with higher durable goods consumption alone accounting for the bulk of growth. In the second quarter, reduced spending on durables provided a slight drag on growth. Reduced spending on motor vehicles, for instance, reduced GDP by 0.29 percentage points. Spending on nondurable goods, though, were a net positive, adding 0.25 percentage points, largely on petroleum purchases.
Other positives in this report include the consumption of services and business investment. Higher service sector spending added 0.87 percent to growth. At the same time, gross private domestic investment contributed 1.08 percentage points, with 0.76 percent from fixed investment and 0.32 percent from inventory growth. Both residential and nonresidential investment provided positive gains in the second quarter; however, these contributions were less than what was observed in the first quarter.
Net exports and government were both drags on growth. The good news is that exports were higher, with its contribution up from 0.60 percent to 0.71 percent. But, the pace of import growth outpaced exports, producing a net negative of 0.31 percentage points. Government continues to provide a drag on growth, something that is expected to continue. With defense and state and local government spending cuts, government reduced real GDP by 0.28 percentage points. This was, however, an improvement from the previous quarter’s 0.60 percent negative contribution.
Overall, these numbers were in-line with expectations, and they reflect continued weaknesses in the global and domestic economies. This was especially acute in the manufacturing sector, which had helped to drive economic growth in the previous couple quarters. Consumers purchased fewer goods, something that should worry policymakers. We have seen this reflected in other economic indicators, as well, with reduced new orders and shipments in many surveys.
One good sign, though, was the positive contribution of nonresidential fixed investment. Businesses continue to spend on equipment and software. Industrial equipment spending, for instance, added 0.16 percentage points to real GDP. This could suggest some cautious optimism for future production, and yet, even here, there has been an easing of activity. The contributions from equipment and software have lessened with each quarter, from the third quarter of 2011 to the present.
In short, the U.S. economy is growing well below what it should be doing at this point in the recovery. Slower growth around the world and uncertainties in the domestic economy weigh heavily on peoples’ minds. Policymakers would be wise to adopt pro-growth strategies that will help to ensure growth for the rest of this year and beyond, and where possible, to alleviate anxieties in the marketplace.
Chad Moutray is chief economist, National Association of Manufacturers.