GDP continues modest growth

The Bureau of Economic Analysis announced today that seasonally adjusted U.S. real GDP grew at a 1.5% annual rate in the second quarter. That is about half of the historical average growth of 3.1% and continues a record of slow growth over the last three quarters. The new numbers put the Econbrowser recession indicator index at 7.0%, about where it was last quarter. Some patterns from the previous quarter were repeated. Nonresidential fixed investment, in part propelled by spending for AI infrastructure, contributed significantly to the Q2 growth. But many of these components were imported, so the net contribution to U.S. GDP — which measures production of new goods in the United States — was more muted. Consumption spending was strong, with some sales being met by inventory drawdown. I continue to be concerned about events in the Strait of Hormuz, and confess to being a little mystified by the big daily jumps up and down in oil prices in response to rumors of a settlement. I see conflict in the Middle East as an ongoing unfavorable factor for U.S. real GDP growth and inflation. I’m so old I can remember when Kevin Hassett was projecting GDP growth “north of 6%” — all the way back in ancient May, 2026. Maybe he was holding his compass upside down. I suspect low inventories amplify petroleum price swings. I’d also hazard that algorithmic trading has become a bigger share of overall trade volume because headlines are now so important, and algorithmic trading can boost volatility – just a guess. However, if Professor Hamilton is mystified, then I’ll go for mystified.