U.S. GDP Disappoints, Inflation Softer Than Feared, Consumers Resiliant

The U.S. economy expanded at a slower-than-expected 1.5% annual rate in the second quarter. But a closer look show a resiliant consumer, continuing investment and softer-than-expected inflation numbers, all adding up to a further cooling in expectations the Federal Reserve Board will raise interest rates.

Consumer demand grew 3.2% annualized vs. 0.5% in the first quarter, but this came with a further decline in the household savings ratio of just 2.7%.

Investment continued to grow, with tech investment leading the way, non-tech business investment showing renewed strength and residential investment making a positive contribution. Tech sector spending has been hot and heavy resulting in a run-down in inventories which subtracted 0.7ppt from the headline growth rate and a big jump in inventories.