Q2 GDP Preview: Shifting Drivers, Slower Growth

Economics Group of Wells Fargo Bank, N.A. Summary We expect to see real GDP growth expanded at a 1.7% annualized rate in the second quarter when data print tomorrow. A resilient consumer and rebound in capex spending will lead most of the gain, as will a large boost from inventories, despite what we anticipate to be only a modest build, amid producers’ caution not to get too over their skis. Core Components Remain Solid When the Commerce Department releases Q2 real GDP data tomorrow, we expect to see the economy expanded at a 1.7% annualized rate. While that would still mark a fairly solid outturn, it is consistent with a slowing pace of expansion over the past few quarters (Figure 1). We anticipate weakness will be concentrated in residential investment, where a bounce in new construction is getting somewhat offset by lower home improvement spending and sluggish broker’s commissions, and net exports amid a sharp drop in exports at the start of the quarter. Overall, we anticipate the underlying GDP details to be broadly positive, amid continued consumer spending and a rebound in capex investment specifically. The core components of the economy measured as real final sales to domestic purchasers (which strips out net exports and inventories) is thus actually set to accelerate in the second quarter from the 3.5% annualized pace registered in Q1, demonstrating a still solid pace of activity. Recent data for June retail sales as well as upward revisions to prior months’ data show continued resilience in spending and strong growth in real Personal Consumption Expenditures (PCE). We forecast real PCE to advance at a 1.5% annualized clip in Q2, a feat made all the more impressive after spending rose north of 4% in Q1. READ FULL ARTICLE >>