Thought of the day
31.07 - Consumer and capital spending show promise
A slightly weaker-than-consensus US GDP print of 2.6% for the second quarter added to pressure on both the US dollar and equities on 28 July. That initial read was reinforced by a downward revision of first-quarter GDP to 1.2%, and further evidence of soft wage growth from a lukewarm 0.5% quarter-over-quarter rise in ECI data.
But a look at the details offers encouraging growth signals ahead:
- Second-quarter growth missed expectations, but has still picked up markedly from the first-quarter run rate of 1.2% (lowered from 1.4%). And on a year-on-year basis, GDP grew 2.1% in the second quarter, its best result since 3Q15.
- Consumer spending rose 2.8%, underpinned by a 3.2% gain in real disposable incomes, the highest rate of increase in two years.
- Capital spending continues to climb, with business investment in equipment increasing by 8.2%, the largest rise in almost two years.
So economic conditions remain favorable for corporate earnings growth, which we estimate at 11% for this year. Still subdued wage and price pressures support our expectations the Federal Reserve will hold on rates until December at the earliest. We remain overweight global equities.