Two key factors restricting GDP growth in the US
Second quarter GDP (gross domestic product ) growth in the US fell short of market expectations. The two key factors restricting GDP growth in the US (SPY) are the decline in oil price and the strengthening US dollar. We’ll analyze both of these factors in this article.
Low oil price is affecting energy sector margins
Oil price is displaying more of a declining trend so far this year. Despite some recovery during the second quarter, crude oil has largely remained between $58 and $62 a barrel for most part of the second quarter. This is far below the levels near $100 that prices were at before July 2014.
Imports increased on account of a stronger dollar
Breaking the GDP down into its component parts, we find that negative contributions from private inventory investments, non-residential fixed investment, and federal government spending restricted 2Q GDP growth in the US, while PCE (personal consumption expenditures), exports, state and local government spending, and residential fixed investments helped the GDP expand by 2.3% in 2Q15.
Imports rose as a result of the stronger dollar. A stronger dollar tends to hurt exports, as exports become less competitive. On the other hand, a stronger dollar boosts imports, which become cheaper. Exports in the US (SPY) have been hurt by the stronger dollar (UUP), which has also hurt export revenues of US multinationals such as United Technologies (UTX), Microsoft (MSFT), and McDonald’s (MCD). The bureau will release its second estimate for 2Q GDP on August 27, 2015.
While GDP figures provide a good estimate of the overall performance of the economy, certain economic indicators give vital cues into the performance of specific sectors. For example, the jobless claims data is useful in accessing labor market conditions along with its effect on the consumer sector, as we’ll discuss in the next article.