( esc )

Log In


Forgot Password? Sign In

Social Media

Don't Have An Account?

Sign Up
  Sign in


U.S. Economic Growth and Real Estate

ENDVEST Aug 20, 2015

After a harsh winter, the U.S. economy rebounded in the second quarter, due to an increase in consumer spending and a recovery in international trade.


The announcement reverses fears earlier this year that the U.S. economy would shrink.


Thursday, the U.S. Department of Commerce said that GDP grew at a 2.3 percent annual rate for Q2 of 2015. The government also said GDP in the January-March period grew 0.6 percent, a marked improvement over the predicted 0.2% decreased.


This pattern is familiar: in the past, the economy has underperformed in Q1 and ramped up in Q2. This uneven momentum has contributed to stagnant growth since the meltdown officially ended in June 2009. The recovery has been one of the slowest in U.S. history.


Updated GDPs for the last three years reveal that the economy’s growth was weaker than previously thought.


Nevertheless, economists are optimistic about the remainder of 2015. Strong employment gains will lead to increased consumer spending, which will spark additional growth, estimated to be around 3% for the rest of 2015. The predicted strength explains why the Federal Reserve may increase interest rates at the end of this year.


The Fed recognized that employment, housing and consumer spending have all improved. Despite these improvements, the Fed kept a key rate at a record low near zero, where it has remained since the 2008 mortgage crisis. The Fed explained that it still needs to see gains in the job market to feel confident that inflation will return to its 2% target. 


Many believe September could see the first rate increase in seven years, while others predict that the Fed will wait until December. 


“The second-quarter U.S. GDP data support the Fed’s more upbeat tone on economic conditions and suggests that the economy could cope with higher interest rates,” said Steve Murphy, U.S. economist with Capital Economics.


This growth figure showed a gain of 4.3 percent in the third quarter of last year. The report was the government’s first of three estimates.


In the government’s newly revised figures from 2012-2014, the economy expanded at a 2% annual rate, lower than the previous 2.3% estimate. Nearly all the underperformance occurred in 2013, when the government announced that the economy expanded only 1.5 percent, significantly less than its previous 2.2 percent estimate.


The changes resulted from Commerce’s annual revisions, which reflect updated data from the Census Bureau, IRS and other agencies.


The less-than-expected growth has raised the question: has the U.S. economy entered a period of slow growth? The nation’s workforce is growing slowly, and employees are less efficient than before the recession. These could both restrict future economic growth.


In the second quarter, consumer spending (responsible for 70 percent of economic activity) expanded at an annual rate of 2.9%. That is a marked improvement from the 1.8% growth in Q1.


Trade also helped overall growth. It added 0.1% to growth after decreasing nearly 2% in the first quarter. The swing demonstrates a sharp increase in exports, which had plunged in the first quarter, and a decrease in imports.


Trade in Q1 was hurt by a dispute at West Coast ports and the high value of the USD, which made American goods more expensive in foreign markets.


Additionally, the Federal Reserve announced they would not increase rates until at least September, which lowered mortgage rates even further. In theory, a decrease in the mortgage loan rate should increase the number of homeowners. This week, mortgage applications have increased 0.8%. 


Expect many homeowners, both existing and new, to both take out mortgages and refinance their houses as the urgency of rising rates in the coming months.