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Michelle Holmes

September 12 , 2016

Breaking Down GDP

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The U.S. economy grew at 1.1% in the second quarter of the year, below analyst expectations. The headline number may be below expectations, but when you break down the numbers, there are pockets of surprising growth.

The U.S. consumer spent at a pace of 4.2% in the second quarter after a slow first quarter.  Consumer spending is still the largest component of GDP. The strength in consumer spending helped offset other area of the economy that detracted from growth including business and government spending.

There was a large buildup of inventories last year and early in 2016. The strong consumer spending drew down inventories in the second quarter. This reduction could add to GDP growth in the second half of the year if consumer spending remains strong. Business investment fell in the last year because of the oversupply of inventories detracting from GDP.

Net exports added slightly to GDP for the first time in a year. A stronger dollar makes imports cheaper and exports more expensive. The net exports are likely to be neutral for GDP in the next year with lower worldwide demand and currency fluctuations.  

The U.S. consumer continues to spend despite slowing growth in other areas of the U.S. and world economies. The consumer makes up about two thirds of the U.S. economy, so consumer spending still drives the direction of the U.S. economy. If you want to learn more about consumer spending and current market trends, contact your advisor today.  Do you know how your consumer spending might impact on when you retire and what you can do in retirement? Your advisor could walk you through a MoneyGuidePro analysis of where you are financially, where you want to be, and if necessary, steps you can take to get you there.

 

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