U.S. GDP grows by a 1.5% rate in the second quarter--the odds of a new stimulus package from the Fed next week go up

07/27/2012 1:44 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Not as bad as expected.

That’s what passes for good economic news right now.

This morning the Bureau of Economic Analysis reported that U.S.GDP grew at an annual rate of 1.5% in the second quarter of 2012. That’s down from a 2.0% growth rate in the first quarter of the year. And from 4.1% growth (revised upwards today from 3.0%) in the fourth quarter of 2011.

But—drum roll, please—the 1.5% growth rate was better than the 1.2% expected by economists surveyed by Briefing.com.

The big worry that I have going forward is that the data showed a drop in consumer spending with household buying growing at the slowest rate since the second quarter of 2011. Consumption growth fell to 1.5% in the quarter from 2.4% in the first quarter of the year.

However, while that’s my biggest worry—since consumer spending accounts for 70% of U.S. economic activity—it’s hard to find a positive trend in the data in any direction. Nonresidential fixed investment—spending on factories, for example, climbed at a 5.3% rate, down from a 7.5% pace in the first quarter. Residential investment, you know houses and such, grew at a 9.7% rate, but that was a big step down from the 20.5% rate in the first quarter. Government spending fell for the eighth consecutive quarter, declining 1.4%. (That was actually an improvement from the 3.0% rate of decline in the first quarter. Most of the damage came from the continued drop in spending by state and local governments.

This is the data that forms the context for the decision of the Federal Reserve’s Open Market Committee on August 1 on whether or not to stimulate the U.S. economy—most probably with another round of quantitative easing. (The consensus is that the Fed, if it moves, is likely to announce a new program to buy mortgage-backed securities instead of Treasuries.) The economy may not be quite weak enough to make the Fed act, but this data sure doesn’t do anything to decrease the odds of a move by the U.S. central bank.

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