U.S. economic growth unexpectedly remained tepid in the second quarter as inventories fell for the first time in nearly five years and business investment weakened further, offsetting robust consumer spending.
Gross domestic product increased at a 1.2 per cent annual rate after rising by a downwardly revised 0.8 percent pace in the first quarter, the Commerce Department said on Friday. In addition, the GDP growth estimate for the fourth quarter was cut by five-tenths of a percentage point to a 0.9 percent rate.
Loss of momentum The three straight quarters of growth rates around 1 percent suggest a significant loss of momentum that puts the economy at the risk of stalling, but economists expect an acceleration in the second half against the backdrop of strong consumption.
Though the inventory drawdown weighed on GDP growth, that is likely to provide a boost to output in the coming quarters as businesses order merchandise to restock depleted warehouses.
“The U.S. economy just went through a meaningful inventory correction cycle,” said Harm Bandholz, Chief U.S. Economist at UniCredit Research in New York.
“In the past, those developments have even led to recessions, but given that potential growth is slower these days and that other headwinds occurred at the same time, one may actually be tempted to highlight the economy’s resilience.”
Excluding inventories, GDP growth rose at a 2.4 percent rate and domestic demand increased at a 2.7 per cent pace.
