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US economy stutters in second quarter after housebuilding falls

Published 29/07/2016

US economic growth figures were lower than analysts expected
US economic growth figures were lower than analysts expected

The US economy churned out a lacklustre performance in the second quarter as strong consumer spending was countered by a slide in housebuilding.

The US Department of Commerce said gross domestic product (GDP) came in at a lower-than-expected rise of 1.2% in the three months to June, with market analysts having pencilled in growth of 2.6%.

The update came as the American government also revised down its estimate of first quarter GDP growth to 0.8% from 1.1%.

It means the world's largest economy has now stuttered for three straight quarters.

Consumer spending, which accounts for 70% of economic activity in America, picked up pace in the spring, growing at its fastest rate since 2014 with an annual rate of 4.2%.

However, housing construction shrank at an annual rate of 6.1% over the period, fading from robust performances in previous quarters.

Chris Williamson, IHS Markit economist, said the overall growth slowdown comes as companies continue to fight multiple headwinds, including the strong dollar, an energy sector slowdown and hesitation on spending ahead of the presidential election.

"US economic growth failed to gain momentum in the second quarter, with a pace of expansion which looks especially underwhelming when looked at in the context of the sluggish start to the year.

"Consumer spending continued to provide a major boost to the economy, however, and once the impact of a downward inventory adjustment is considered, the underlying pace of growth looks healthier than the headline number.

"While no doubt disappointing, the GDP data are backward looking and whether or not the Fed hikes interest rates again this year depends more on the future data flow than what happened back in the second quarter.

"However, the ongoing softness of growth in the second quarter will no doubt add to calls for policymakers to err on the side of caution and as such greatly reduces the chance of any rate hike before December."

The US government has reviewed its growth reading for 2015 to 2.6%, up from its previous estimate of 2.4%.

US jobs growth slowed sharply in April and May, but made a resurgence in June when it added 287,000 in its biggest monthly gain since October.

The Federal Reserve, which voted to keep interest rates on hold this week, noted that the US economy was improving. It said the "near-term risks to the economic outlook have diminished."

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