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US Gross Domestic Product Picks Up Pace in Second Quarter

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Gross domestic product in second quarter

After a soft start in the first quarter of 2015, US GDP (gross domestic product) increased 2.3% in the second quarter of 2015. The advance estimate for the second quarter GDP growth rate was released by the BEA (Bureau of Economic Analysis) on July 30. The US GDP growth rate was below the consensus economist estimate of 2.9%. The US economy grew at a revised rate of 0.6% in the first quarter.

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The US GDP growth rate is a vital indicator that reflects the rate at which the economy is growing. The advance estimate for the second quarter US GDP growth rate may be subject to revision. The BEA will provide a second estimate on August 27.

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Factors that contributed to growth

The second quarter GDP growth rate was driven by higher consumer spending on durable goods, nondurable goods, and services. Lower oil prices and an improved job market seem to have had a favorable impact on consumer spending, which was up 2.9% in the second quarter.

Consumer spending on durable goods such as cars increased 7.3%. Consumer spending on nondurable goods such as apparel increased 3.6%. Higher spending on nondurable goods is a favorable indicator for department stores.

Other factors that helped GDP growth include higher exports, state and local government expenditures, and residential fixed investment.

Impediments to GDP growth

Factors that negatively impacted the second quarter US GDP growth include higher imports, a decline in inventories, and a fall in nonresidential fixed investment. Higher state and local government expenditures were offset by a decline in federal government spending.

Key takeaways for department stores

Department stores, which come under the consumer discretionary sector (XLY) (FXD), tend to perform well during periods of economic expansion. An increase in the US GDP growth rate instills consumer confidence and might translate to higher consumer spending. A rise in consumer spending is favorable for department stores like Macy’s (M), Nordstrom (JWN), Kohl’s (KSS), and JCPenney (JCP).

These four department stores together account for ~4.1% of the portfolio holdings of the SPDR S&P Retail ETF (XRT). In the next part of this series, we’ll look at the latest data on jobless claims.

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