(Peter G. Hall, EDC)
That famous hole in Wyoming where central bankers and other key economy-watchers convened two weekends ago was a fitting metaphor for the post factum sentiment of delegates. Or at least, the American ones. Sentiments were decidedly gloomy, noteworthy for a group that eschews herd hysterics. The mood was fed by the latest US GDP data, released just a day before the conference.
Monthly indicators had long since fed expectations of slower second-quarter growth. Following gains of 5% and 3.7% in the two preceding quarters, the April-June period was projected to be in the 2.5% range. But late-breaking data felled that forecast, and the final number rang in at a thin 1.6%. While surprises like this have occurred in the past, given the current context, this one was a nasty shock.
Who was the culprit? Consumers didn’t help. Weak employment and ongoing deleveraging kept spending growth to 2% for the quarter, but no one was wildly surprised. In contrast, investment data – hard to anticipate at the best of times – were a surprise, but in the other direction. Businesses ramped up spending on equipment by a stunning 25%, and the gain was matched by a stimulus-related one-off increase in residential investment. Numbers like this would normally yield a better bottom line.
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