U.S. Q2 GDP report is solid - RBC

Josh Nye, the senior economist at the Royal Bank of Canada (RBC), notes that the U.S. GDP surged by 2.2% in Q2, slightly above expectations.

• “As expected, today’s GDP report was the opposite of Q1 with stronger domestic spending growth but a drag from trade and inventories that held headline growth to 2.1%. Any concerns about the health of the US consumer should be dispelled by today’s release—consumer spending was up more than 4% in Q2, making up for softer gains in the prior two quarters.
• We argued that today’s report wouldn’t explain why the Fed is set to lower rates next week. But there are a few data points here that policymakers can point to as justifying a pre-emptive move.
• Business fixed investment declined in Q2 for the first time in three years—a sign that trade tensions and slowing global growth are generating uncertainty for businesses. And the core PCE deflator, the key price measure from today’s report, was up an annualized 1.8% in Q2—below 2% for a fourth consecutive quarter.
• The Fed sounds increasingly frustrated with inflation falling short of its target, so expect these numbers to be pointed to next Wednesday.”