The Corner

Sluggish Second-Quarter Growth Beats Low Expectations

The Bureau of Economic Analysis announced today that the nation’s gross domestic product increased at an annualized rate of 1.7 percent in the second quarter of 2013. That’s an improvement over last quarter’s growth and considerably higher than analysts’ projection of 0.9 percent; however, it’s hardly a sign of a strong recovery, especially since the BEA also revised last quarter’s growth rate down to 1.1 percent. As PNC Financial Services economist Gus Faucher told the Wall Street Journal, “the story remains the same. The economy is expanding but growth remains disappointing.”

According to the Bureau, this quarter’s growth was primarily driven by consumer spending, exports, inventory investment, housing, and investment in fixed capital (i.e., physical assets such as machinery); the growth rate took a hit from a net decrease in federal spending, although state- and local-government spending rose. Housing investment posted a particularly impressive gain of 13.4 percent, signaling that the sector continues to recover from the crisis that helped trigger the recession — and fueling fears of yet another housing bubble.

Interestingly, the BEA’s estimate of inflation from 2009 to 2012 was revised downward, from an already-low 1.8 percent to 1.6 percent. While a small change, this would appear to further bolster inflation “doves,” including Federal Reserve vice chairman and possible Bernanke successor Janet Yellen, who argue that the Fed should be doing more to hit its 2 percent inflation target.

As always, today’s initial release comprises preliminary estimates, which will be revised to reflect more complete data on August 29.


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