The U. S. economy grew at a modest 2.3% rate in the second quarter according to the preliminary report of the Bureau of Economic Analysis. First quarter growth was revised upward to 0.6% from the initial report of -0.2%. Consumer spending continues to lead growth even though personal disposable income only grew by 1.8% in the second quarter. The savings rate fell to 4.8% as consumer spending outpaced income. Key headline measures of the labor market have been good with the unemployment rate falling to 5.3% in July and monthly job gains averaging 246,000 over the past 12-month period. Job gains in July were more modest but respectable at 215,000. Less positive labor market news comes from a continued decline in the labor force participation rate, which is now only 62.6% in July. Labor compensation is not yet consistent with a tight labor market. Wages and salaries fell 0.2% in the second quarter following an anemic 0.7% increase in the first quarter. On a year-over-year basis, wages and salaries have increased a modest 2.1%. The Employment Cost Index, which includes wages and salaries as well as benefits, also had a 0.2% increase in the second quarter. As we approach seven years after the Great Recession, the economy still has a lot of ground to cover before reaching full employment. With soft compensation data in combination with a capacity utilization rate of only 78.4%, it appears that the U-3 unemployment rate will need to fall to the 4.8% to 5.0% range before bottlenecks and excess demand introduce unhealthy inflation.
US economic reports in August were generally strong. Second quarter real GDP growth was revised from a 2.3% to a 3.7% annualized rate (a.r.). The revision in real GDP primarily reflected upward adjustments to Personal Consumption Expenditures (PCE), nonresidential fixed investment, state and local government spending and private inventory investment, but downward revision to imports.