Q2 GDP Up 1.2%, Far Less Than Forecast

Date: July 29, 2016 Last Edit: August 02, 2016

Consumers Spent During Q2, But Businesses Remained Cautious Over Uncertain Environment

The latest Commerce Department data shows that during Q2 2016, real GDP rose at an annualized rate of 1.2%, up from a 0.8% increase during Q1 2016. These results were highly disappointing, given that average economist expectations for Q2 GDP growth ranged from about 2.2% to 3.4%. However, there was one positive indicator for the economy found within the GDP data – consumer spending, which during Q2 showed strength across indicators, and increased 4.2%, more than twice the Q1 increase of 1.6%. In a statement on the Q2 GDP report, White House Council of Economic Advisers Chair Jason Furman said, “Today’s report underscores that there is more work to do, and the President will continue to take steps to strengthen economic growth.” Bloomberg News reports that the Q2 GDP results indicate the US economy “expanded less than forecast…after a weaker start to the year than previously estimated as companies slimmed down inventories and remained wary of investing amid shaky global demand.” Economists surveyed by Bloomberg had expected a 2.5% GDP growth rate for the quarter. The latest data, according to Bloomberg, “raises the risk to the outlook at a time Federal Reserve policy makers are looking for sustained improvement.” Although the results indicated “resilient” consumers, businesses continued to be “cautious – cutting back on investment and aggressively reducing stockpiles amid weak global markets, heightened uncertainty, and the lingering drag from a stronger dollar.”

What Happens Next

Friday’s Q2 GDP results are just the initial results, and may be revised upon release of final Q2 GDP data on August 26. However, it is highly unlikely that any revisions would show Q2 GDP growing at anywhere close to the rate economists had forecast for the quarter.

What This Means For Small Businesses

Sadly, the latest Q2 GDP results are a reflection of the uncertainty small business owners have been facing in a sluggish economy. NFIB Chief Bill Dunkelberg in the latest Small Business Economic Trends report projected that, “Our data indicate that there will be no surge from the small business sector anytime soon and prospects for economic growth are cloudy at best.” Similarly, NFIB President and CEO Juanita Duggan pointed out that, “Fifty percent of GDP is small business. To grow the economy, policy makers need to get serious about tax reform, over-regulation, and health care costs.” None of these issues were seriously addressed during the first half of 2016, meaning businesses continued their cautious approach to expansion, severely undermining GDP growth.

Additional Reading

The Wall Street Journal also covered the Q2 GDP results, and US News & World Report reported on the Federal Reserve Bank of Atlanta’s downward revision of its own Q2 GDP forecast.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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