Second Quarter GDP Report – A Strong Consumer Drives Growth

Second Quarter 2019 GDP Report Chart

Gross Domestic Product (GDP) rose by 2.1% in the second quarter, which marginally beat expectations of 1.8%. As opposed to previous quarters, growth was not as broad-based, but instead derived from two primary areas - consumer and government spending. Consumer spending was responsible for the majority of Q2 GDP growth, growing 4.3% and contributing 2.85% to the final growth figure which represents the strongest contribution since Q4 2017. Gross private domestic investment, which encompasses business investment, residential investment, and the change in business inventories was the biggest detractor from GDP growth in the quarter, shaving 1% off of growth. Business investment had its worst quarterly result in 15 quarters, as trade and geopolitical concerns have begun to increasingly affect business confidence. Housing also continued its slide, representing the 8thquarter of detraction from GDP in the last 9 quarters. Trade was a drag as well. Net exports nearly reversed the 5.4% growth in Q1 with a 5.2% decline in Q2 as exports detracted 0.63% from GDP growth and imports were basically a non-factor. If the dollar continues to strengthen, trade may continue to detract from GDP growth. Finally, government spending was quite strong in the quarter, contributing an abnormally large 0.85%. All in all, it was nice to see such a resilient consumer amid increasing trade and geopolitical concerns, however the trend in business investment when coupled with recent poor business confidence releases is something that we are keeping a close eye on.