Disappointing Q2 economic report signals continued weakness in US economy. Can Washington serve as a good example?

Friday’s Bureau of Economic Analysis report on Q2 economic growth disappointed analysts, along with just about everyone else looking for a sustained upturn. The graph tells the story.

News Release  Gross Domestic Product

From the BEA rele, with the caveat:

Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent (revised).

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The “second” estimate for the second quarter, based on more complete data, will be released on August 26, 2016. [references omitted]

As we noted last week, Washington led the nation in Q1 GDP growth. There’s no reason to question that the state will again prove to be a strong performer in Q2 when the more complete data with state-level information is available. Still, the weakness in the national economy is a concern.

Economist James Hamilton puts the numbers in perspective in Econbrowser,

The U.S. growth rate has historically averaged over 3%. Many of us have concluded that a long-term growth rate around 2% may be more realistic to expect at this point. But the last three quarters have fallen significantly below even that new lower bar. 

I had been among those who attributed the anemic first-quarter numbers in part to seasonal adjustment problems. This argued for some spring-back effect expected for the second quarter, to which reality has now answered with a cold shower. The Federal Reserve Bank of New York nowcast had been anticipating 2.2% growth for Q2. The Atlanta Fed nowcast was 1.8%, and the Wall Street Journal economists’ survey called for 2.6%.

Bloomberg News writes

The report raises the risk to the outlook at a time Federal Reserve policy makers are looking for sustained improvement. While consumers were resilient last quarter, businesses were cautious — cutting back on investment and aggressively reducing stockpiles amid weak global markets, heightened uncertainty and the lingering drag from a stronger dollar.

The New York Times looks for a bright spot and notes regional variations,

The new economic data underscores the continuing frustration about the current growth cycle, which has now gone on for seven years — longer than most economic upswings — but which has repeatedly failed to break out into a higher orbit…

But there are other signs that the economy is on the mend, even for ordinary Americans who had, until recently, barely benefited from the rebound. The unemployment rate, which reached 10 percent after the recession, has fallen back to around 5 percent, while hiring and pay gains have been healthier lately. Those factors may ultimately contribute more to perceptions of vitality than abstract statistics on the nation’s economic output.

 …Regional disparities have contributed to differing perceptions of the economy. Workers in the West are finding themselves priced out of neighborhoods in booming San Francisco and Seattle, while families in less prosperous parts of the country say they feel as if the recession never really ended.
The Opportunity Washington “priorities for shared prosperity” emphasize enduring principles for expanding opportunity and building sustained economic growth: education (Achieve), infrastructure (Connect), and economic vitality with sensible regulatory and fiscal policies (Employ). Those policies can help Washington withstand the continued turbulence in the national economy. With successful implementation and commitment, they may serve as a good example for others.