Economy grew 1.2% in second quarter, far below expectations
The sputtering, weezing US economy is barely managing to keep its head above water as the Department of Commerce announced second quarter growth of 1.2%, far below the 2.6% predicted by private economists..
In addition, first quarter growth was revised downward from 1.1% to 0.8%.
Most indices were equally weak with a couple of exceptions. Consumer spending rose 4.2% and inventories were cut substantially. But while payrolls are growing modestly, there doesn't seem to be any momentum behind the job growth.
The quarter's growth failed to take off even amid signs that the headwinds created by slow growth overseas have abated. Over the past two years, weak global growth has driven down the price of oil, decimating the U.S. energy sector, and propped up the dollar, hurting manufacturers. But in both quarters of 2016, trade has stopped subtracting from Gross Domestic Product and even boosted it, very mildly.
"In short, growth was weaker than expected, although mainly because of a larger-than-expected drag from inventories, which is positive for future growth," wrote Jim O'Sullivan, economist for the forecasting firm High Frequency Economics.
One major question for the rest of the year is whether the weak output numbers or the relatively strong job growth of recent months proves to be reliable. While the GDP reports suggest that the economy is sputtering, payroll job growth has averaged 147,000 over the past three months, more than enough to keep unemployment falling rather than rising.
If it turns out that the output numbers are the better indicator, Republicans will not hesitate to run even harder against the economic record of President Obama. "Americans deserve better than the anemic growth they're getting today," GOP Ways and Means Committee chairman Kevin Brady of Texas said in response to Friday's report.
Slow growth didn't do much to derail Obama in 2012 so it's an open question just how much these stats matter to most voters. Far more relevant is how their personal economic situation is holding up. Anxiety about one's job, or slow wage growth has a greater impact on a voter's decision who to cast their ballot for.
Then there's the fact that a lot of people simply don't believe government statistics anymore. This factor will become more prominent if economic stats show a spurt before the election. No matter what the previous 7 years have shown, if there is a good growth rate reported at the end of the third quarter in September, you can bet the Clinton campaign will point to it as evidence of the success of Democratic economic policies.