US GDP rebound fails to ignite dollar spark

News Release: Gross Domestic Product - Bureau of Economic Analysis

Economists had expected an increase of 0.2 per cent, according to Thomson Reuters.

The mining, oil and gas extraction sector accounted for almost 0.4 percentage points of May's overall economic growth. Many economists, however shrugged off that performance, saying Commerce routinely underestimates growth early in the year because of challenges making seasonal adjustments in categories such as defense spending and exports.

That puts the first half average growth at 1.9%, still under 2%, and no great shakes, points out Thomas Byrne of Wealth Strategies & Management. He has set an ambitious 3% growth target for 2017.

The closely watched by the Fed core PCE q/q rose 0.9% in 2Q after rising 1.8% prior quarter, suggesting lower for longer will persist indefinitely.

On Monday, the International Monetary Fund lowered its estimate of how fast the USA economy would grow in coming years, saying that it looked less likely that US policy would stimulate the economy than the IMF projected in April.

"I am a little anxious about the consumer in the second half of this year because of the lack of wage growth", said Ryan Sweet, senior economist at Moody's Analytics in Westchester, Pennsylvania.

Economic growth in the country blew past expectations in May, powered by the energy sector, posting the fastest expansion on an annual basis since October 2000 and raising expectations the Bank of Canada will raise interest rates again this fall. That would follow two straight quarters when investment in homebuilding supported GDP growth. The increase in business investment reflected increases in all three components: structures, equipment, and intellectual property products. It grew at 5 percent in the third quarter of 2014 before sputtering out.

While businesses probably continued to carefully manage their inventories, they appeared to spend more in some places.

Spending rose 2.8% in the second quarter as Americans bought more groceries and clothes and paid more for health care.

"Consumers continue to drive the economy's growth, but firmer business investment is also a plus", says Mark Zandi, chief economist at Moody's Analytics. In addition, it revised first quarter growth down from 1.4 percent to 1.2 percent.

The economy performed slightly better over the past three years than previously believed, thanks in part to a boost from how the government accounts for gasoline sales.

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