Gauging the U.S. GDP: An Uphill Battle or Downward Slope in 2019?
July 30, 2019
By Ted Hanson
Last week, more than 10,000 individuals participated in a 427-mile bike ride across the state of Iowa. Known as RAGBRAI®, this annual tradition started in 1973 and is now one of the most well-known events in Iowa. The riders’ bicycles not only helped them navigate over the rolling hills of Iowa, but provided them with the efficiency necessary to complete their long journey.
Just like cyclists rely on their bicycles, investors and economists rely on data indicators to help them navigate through challenging times in the U.S. economy. And gross domestic product (GDP) is one of the most important indicators we use.
What is Gross Domestic Product (GDP)?
Gross Domestic Product is a monetary measurement of the goods and services produced within a country's borders, over a given time period. It's an important measure, because it provides valuable insight into the health of an economy for policymakers and investors alike.
How is the United States GDP doing in 2019?
As expected, the U.S. economy grew at a slower pace in the second quarter of 2019, rising at an annual rate of 2.1% compared to 3.1% in the first quarter. However, if you look closer at what goes into GDP, you'll notice some components growing while others are slowing — which makes charting an economy's path something of a roller coaster ride (or bicycle race):
The Uphill Journey
Business inventories and trade were the biggest detractors for the second quarter.
- Trade uncertainty has been an uphill battle for the U.S. economy.
- As trade news continued to demand attention in the second quarter and businesses appear to have become more cautious, exports fell 5.2 percent while imports rose slightly compared to the first quarter.
- Business investment, or the purchases businesses make to create new consumer goods, was a drag on growth for the first time in three years.
The Downhill Slope
Much of the second quarter growth was credited to consumer and government spending:
- Consumer spending picked up most of the slack as it rose 4.3% compared to the 1.1% last quarter. That accounted for almost 70% of economic growth in the second quarter! This bodes well, as typically consumers make less big ticket purchases when they are concerned about the economic outlook.
- The government also saw an increase in spending as it rose 5% in the second quarter. Part of that spending increase can be contributed to the effects of the federal government shutdown that lasted into the first quarter.
How does the path forward look for GDP?
Just like a bicyclist will shift gears approaching a hill, it appears the Fed will do the same. After raising rates last December, and maintaining a patient stance since, it appears the Fed will be making a rate cut this week. This expected insurance cut should give the economy the boost of energy that it may need to get over future hills.
As we expected, the economy has slowed but continues to grow this year. Even with the mixed data, we expect to continue on the path of a slowing but growing economy. We will continue on our course of maintaining a fully invested, conservatively structured, and broadly diversified portfolio.
Contact an advisor today to make sure you're prepared for the uphill battles, downhill slopes and the rest of the journey in between.