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Weekly Economic Commentary


GDP Growth: Uninspiring

July 27, 2012

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This morning’s report on real GDP growth confirmed what most had suspected: the U.S. economy lost momentum for the second quarter in a row. The rate of second quarter expansion (1.5%) would have been even more modest if not for inventory growth, which added .3% to that reading. Those stocks will likely be drawn down in the months ahead.
Chart 1 

Key elements of the second quarter report included:
-- Following trends seen in retail sales, the pace of gain in personal consumption slowed quite a bit in the second quarter. Real disposable personal income grew at a 3.2% rate, about the same as it did in the first quarter, but the personal saving rate increased to 4%.
-- Government spending, especially at the state and local level, continues to be a drag.
-- Benchmark revisions to past GDP readings suggest that our current recovery/expansion phase has been somewhat weaker than previously thought.
This data seems consistent with our view that our economy is muddling through at best, and facing myriad headwinds: household balance sheet repair, fiscal frustration, and international uncertainty.
On that last front, there was somewhat encouraging news. German Chancellor Merkel and French President Hollande offered a pledge to do “everything possible to protect the eurozone.” After taking a beating through much of the past two weeks, the euro regained strength.
Chart 2 
Following on ECB President Draghi’s offer to “do whatever it takes,” today’s pronouncement suggested that European leaders understand the urgency of their economic and banking problems and stand ready to respond. But turning statements into action will still require quite a bit of consensus-building and some changes of orientation for the ECB and the European Financial Stability Facility (EFSF). We’ll offer some broad background on the various institutions and actors in an upcoming commentary.
Today’s news is the last major input to next week’s FOMC meeting. A preview of that session, along with our expected outcome, can be found in today’s View from Here commentary.


The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.