The first release of second quarter GDP came in at 1.2%, well below consensus estimates of 2.5%. In addition, the first quarter figure was revised down from 1.1% to 0.8%, making for the weakest first half growth rate since 2011. Private investment was very weak (see chart below), dragging down the overall number despite one of the strongest contributions by consumers since the crisis. While it is encouraging to see the strength of the consumer support GDP growth, it gives us pause to consider the weak business investment data, as that may foreshadow a further slowing in employment data (which has already slowed considerably on a rolling three month basis). If corporate margins are falling, and if investment remains weak, the prospects for further hiring and subsequent increases in spending become murky. As such, it is not surprising that the Fed remains cautious in its approach to further policy rate hikes. We continue to believe that global monetary policies are supportive of risk assets, and that the U.S., led by the consumer, will chug along at a low rate of growth. Consistent with that outlook, we see no pressure on inflation and expect rates to remain range bound for the foreseeable future.
Sources: Bloomberg, Barron’s