Bulletin
Investor Alert

Economic Preview Archives | Email alerts

July 20, 2019, 12:01 p.m. EDT

The economy is likely to get a mediocre grade on its next report card, but don’t take it at face value

Second quarter GDP could be a bundle of contradictions

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Dow Jones Industrial Average (DJIA)
  • X
    S&P 500 Index (SPX)

or Cancel Already have a watchlist? Log In

By Jeffry Bartash, MarketWatch


Getty Images
The final report card on second-quarter GDP is likely to be disappointing, but a read between the lines should show the U.S. economy still gets a passing grade.

Sometimes final grades don’t tell us much about true performance. Take the supposedly slowing U.S. economy.

The government’s official report card on economic growth, known as gross domestic product, is likely to show the economy turned wobbly in the spring. Except that it almost certainly didn’t.

Economists polled by MarketWatch predict GDP growth slowed to 2.1% annual pace in the second quarter from 3.1% in the first three months of the year. Ditto for Macroeconomic Advisors, perhaps Wall Street’s premier forecasting firm.

Yet the details of the report, due on Friday July 26, are likely to tell a very different story.

See: MarketWatch Economic Calendar

The increase in what consumers spent, for example, could surge above a 4% for the first time in five years. That’s a big deal, since 70% of what goes on in the economy is tied to consumer spending.

By contrast, consumer spending rose less than 1% in the first quarter. Very tepid.

“We expect to see signs of strength in consumer spending — much stronger than the first quarter,” said David Donabedian, chief investment officer of CIBC Private Wealth Management.

Read: Americans still upbeat about the economy

What gave a short-lived boost to first-quarter GDP was a surprisingly smaller trade deficit and a spike in inventories that occurred, perversely, because households briefly curbed their spending ways after the holidays. Not a good thing.

The switch will be flipped in the second quarter.

The surge in consumer spending —a huge bright spot — will be offset by a bigger trade deficit and lower inventories.

So the economy is doing great, right? Well, not exactly. The U.S. is growing at a steady pace right now, but storm clouds are a gathering.

The economy’s biggest soft spot is in manufacturing. The ongoing trade fight with China has hurt U.S. exports, forced American firms to scale back production, and spurred them to seek new suppliers.

1 2
This Story has 0 Comments
Be the first to comment
More News In
Economy & Politics

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.