US GDP: Surprisingly slow headline - Wells Fargo

According to analysts from Wells Fargo, the US GDP report of the second quarter showed surprisingly a slow headline it raises question about whether the economy is at risk of stalling out.

Key Quotes:

“Real GDP growth came in surprisingly below expectations, registering a 1.2 percent annual rate in the second quarter. The surprise comes even after many forecasters cut their estimates following the BEA’s release of its new Advance Economic Indicators report yesterday. That report had indicated imports had risen substantially and that there was less inventory building. The first of these two proved to be a head fake. Imports actually declined in the second quarter and the trade deficit narrowed. The latter was clearly evident, however, as business inventories tumbled $8.1 billion, slicing 1.2 percentage points off second quarter growth.”

“Weak second quarter real GDP growth and the weaker year-to-year trend raise questions about whether the economy is at risk of stalling out. Our read is that the unwinding of the energy boom has produced a larger drag than had been previously reported. Business fixed investment in structures has been much weaker going all the way back to the second half of 2014, which is when oil prices topped out. Investment in capital equipment is also slightly weaker than first reported. In addition, the lower inventory figures likely reflect more accurate accounting for oil and gas industry inventories during the period when prices were tumbling.”

“From a momentum perspective, the economy is not far off from where we thought it was. Consumer spending remains strong, as consumers benefit from solid job and income growth and lower energy prices. Real personal consumption grew at a 4.2 percent pace in the second quarter, with  pending on durable goods surging at an 8.4 percent annual rate.”