Slowing GDP, But Markets Rally On Cloudy Rate Hike Picture

The euphoria that greeted strong jobs numbers recently might be tempered a bit by Friday (July 29) GDP numbers that showed that the U.S. economy expanded at a less-than-stellar pace through the first half of this year.

The data from the Bureau of Economic Analysis said that the U.S. economy, among the engines that pull world GDP growth, saw an annualized boost of 1.2 percent in the second quarter that ended in June of this year, which indicates a quickened pace from the 0.8 percent seen in the first quarter of 2016. The latest results, however, were sorely lacking when measured up against the 2.5 percent growth that was estimated by analysts. The average pace now is at 1 percent, well below the 2 percent that has been seen since the economic revival that began in 2009 in the wake of the financial crisis.

The most alarming data point: Investment was down 9.7 percent. That indicates that firms are cautious about committing capital to real infrastructure, which would ostensibly be used to grow business.

The global world stage may be enough to cause U.S. firms to pull back commitments, especially in manufacturing and energy.

The continued impact of low oil prices has a lot to do with that caution, where a strong dollar is not helping matters.

The fact that consumption growth did indeed accelerate, to 4 percent, up from less than 1 percent in the first quarter of this year, gives a mixed signal of sorts — people are buying, but companies are worried that they won’t continue that streak.

The muted growth (even in the face of upward revisions to past annual growth rates) means that the Fed may hold back on raising rates, after having signaled that a boost may be in the offing sooner rather than later. As is almost always the case in the absence of fixed-income allure, equities were up, yet again hitting an intraday high.