GDP growth dovetails with surveys showing consumers are confident

The U.S. economy ended the first half of the year with several positive signals that suggest American consumers are taking Washington’s turbulent politics in stride and focusing on improving their lives.
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The U.S. economy ended the first half of the year with several positive signals that suggest American consumers are taking Washington’s turbulent politics in stride and focusing on improving their lives.

At the top of the list was the Commerce Department’s report that the nation’s gross domestic product expanded by 2.6 percent in the second quarter as consumer spending rose. The GDP’s growth rate more than doubled the first-quarter pace of 1.2 percent.

“After the winter blues, the economy has rebounded,” Sung Won Sohn, an economist at Cal State Channel Islands, told the Los Angeles Times.

MarketWatch noted that the economy has expanded for the past eight years as it overcame the Great Recession and that the country has added 16.6 million jobs since 2010; GDP growth of 2.7 percent is predicted for the third quarter.

“The real economy remains in good shape,” Andrew Hunter, U.S. economist at Capital Economics, told MarketWatch.

U.S. News & World Report said a rebound in the second quarter after a weak start to the year is starting to become a pattern. The publication noted that the first quarter has been the weakest for growth in 2016, 2014, 2011, 2010 and 2009.

"Through the first half of the year the pace of U.S. economic activity appears to be on trend with what we are accustomed to seeing with the current expansion — GDP growth registering another disappointing first-quarter growth performance, to be followed with a stronger pace of growth in the second quarter," Sam Bullard, a managing director and senior economist at Wells Fargo Securities, wrote in a research note that U.S. News quoted in its story.

Bloomberg said a steady job market and household finances boosted by stock and home-equity gains fueled consumer spending during the second quarter. The economy has grown by 1.9 percent during the first half of the year.

At least one economist was not overly impressed by the second-quarter spurt.

“It’s a 2 percent economy, plus or minus a little bit,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, told Bloomberg. “We continue to plod along.”

Consumers remain generally upbeat, though. One key survey found that the public believes the economy will continue to grow and that the job market will continue to expand. Another major survey reported “favorable” results, but was somewhat less optimistic.

The Conference Board’s Consumer Confidence Index rose from 117.3 in June to 121.1 in July — within four points of the 16-year high of 124.9 that the index reached in March.

“Consumers’ assessment of current conditions remained at a 16-year high and their expectations for the short-term outlook improved somewhat after cooling [in June],” Lynn Franco, director of economic indicators at The Conference Board, said in a statement. “Overall, consumers foresee the current economic expansion continuing well into the second half of this year.”

The Conference Board reported that the percentage of consumers who said jobs are “plentiful” rose in July from 32 percent to 34.1 percent; those who said jobs are “hard to get” decreased slightly, from 18.4 percent to 18 percent.

The percentage of consumers who expect business conditions to improve during the next six months (the short-term outlook) increased from 20.1 percent to 22.9 percent; those who expect conditions to worsen declined from 10 percent to 8.2 percent.

"This brightens the outlook for the economy as we enter the second half of the year," Chris Rupkey, chief economist at MUFG in New York, told Reuters. "We expect Fed officials will continue with their gradual pace of rate hikes, secure in the knowledge that a confident consumer means that more spending is on the way."

At the end of last week the University of Michigan said its final Consumer Sentiment Index reading for July was 93.4, largely unchanged from what Richard Curtin, chief economist of the university’s Surveys of Consumers, said was “the favorable level recorded at mid-month.”

The index has fallen by five points since January, when it rose to its highest level in 12 years, but Curtin said the “relatively small decline still left the Sentiment Index higher in the first seven months of 2017 than in any other year since 2004. The size of the decline was tempered by record favorable views of current economic conditions, which rose to its highest level since July of 2005.”

“These gains were mainly due to improvements in consumers' personal finances,” Curtin added. “At the same time, consumers expressed less optimism about future prospects for the overall economy and for their own personal finances. The Expectations Index fell from 90.3 in January to a still positive 80.5 in July; if it continues to decline by another 10 points in the second half of 2017, the loss would become more worrisome.”

Separately the housing market delivered mixed news last week as a continuing low supply of available homes constrained new-home and existing-home sales.

The National Association of Realtors said at the start of the week that home resales fell 1.8 percent in June, to a seasonally adjusted annual rate of 5.52 million.

"Closings were down in most of the country [in June] because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that's straining their budget," Lawrence Yun, chief economist of the realtors’ association, said in a statement.

"The demand for buying a home is as strong as it has been since before the Great Recession,” Yun added. “Listings in the affordable price range continue to be scooped up rapidly, but the severe housing shortages [afflicting] many markets are keeping a large segment of would-be buyers on the sidelines."

At midweek, the Commerce Department said new-home sales rose 0.8 percent in June, to a seasonally adjusted annual rate of 610,000. An inventory shortage also hampered the new-home market, but one economist said he believes this will still be its best year in a decade.

"This is the fourth month out of six in 2017 with sales above 600,000 — putting new-home sales on track for the strongest year since 2007," David Berson, chief economist at Nationwide Mutual, said in a statement that U.S. News & World Report quoted in its story about the new-home results. "Although low inventory levels are holding new sales down, the impact has been less than that for existing sales.”

This week, economy watchers will see the unemployment report for July, which the Labor Department will issue Friday. Economists’ median forecast is that the economy added 185,000 jobs and that the jobless rate edged slightly lower, to 4.3 percent.

Along with reports due earlier in the week on personal income, consumer spending and inflation for June, the jobs figure will be another barometer of whether employers and consumers remain confident that the economy is on a sustainable growth path.

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