Real Estate

Paltry GDP growth shows economy is “barely above water”

Residential construction fell due to weaker single-family housing starts

In the second quarter of 2016, real gross domestic product, the value of everything a nation produces, grew at a rate of 1.2% from last year, according to the estimate released today by the Bureau of Economic Analysis.

These results have some experts thinking that the Fed is not going to raise interest rates in September.

“The disappointing 1.2% annualized gain in second-quarter GDP growth, combined with the downward revisions to gains in the preceding two quarters, make a September interest rate hike much less likely,” Capital Economics Chief Economist Paul Ashworth said.

“Over the past 12 months, the economy has expanded by only 1.2%,” Ashworth said. “What is really worrying is that pace has still been enough to reduce the unemployment rate further, suggesting that the economy’s potential growth rate could conceivably be close to zero.”

Last quarter, the GDP grew at an upwardly revised annual rate of 0.8%.

“GDP growth in the second quarter shows the economy barely above water,” National Association of Realtors Chief Economist Lawrence Yun said. “It marks the third consecutive quarter of near 1% growth as opposed to the historical long-term average of 3%.”

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures and exports, but were partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

“Consumers did their job by spending robustly, which should partly be attributed to the $2 trillion in housing wealth accumulation in the past year,” Yun said.

“However, residential construction fell due to weaker single-family housing starts in the second quarter versus the first quarter,” Yun said. “Businesses, meanwhile, are on strike as they cut back spending.”

Click to Enlarge

GDP

(Source: U.S. Bureau of Economic Analysis)

“Going forward, GDP should avoid recession for the simple reason that more new homes need to be constructed,” Yun said. “America is experiencing a housing shortage crisis. More homes need to be built and that in turn will lead to faster economic growth.”

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