The U.S. economy entered its 10th year of economic expansion last month, and recent data point to continued economic growth for the second half of the year. Robust consumer spending, above-trend labor force growth, and elevated business and consumer sentiment support above-potential growth through the rest of 2018. Inflation measures remain at or just below the Federal Reserves 2 percent target, and long-run inflation expectations are little changed.
The advance estimate of real (inflation-adjusted) gross domestic product (GDP) for the second quarter of 2018 indicated the economy grew at a strong pace. GDP growth came in at a seasonally adjusted annual rate of 4.1 percent, in line with many forecasts.
The strong quarter is due to a rebound in consumer spending, which contributed 2.7 percentage points, up from the first-quarter contribution of 0.4 percentage points. Net exports and nonresidential investments were also drivers of growth in the second quarter, contributing 1.1 and 1.0 percentage points, respectively. On the downside, inventories subtracted 1.0 percentage points from GDP growth.
Although running lower than a month ago, survey-based indicators for real economic activity remain in expansionary territory. The Institute for Supply Management (ISM) manufacturing index dipped from 60.2 in June to 58.1 in July. Similarly, the non-manufacturing composite index dropped from 59.1 in June to 55.7 in July (please see the Chart 2). Values above 50 indicate expansion.
Source Federal Reserve Bank of Dallas
Image caption: Chart 2: Elevated ISM Supports Strong Growth
Image courtesy of Institute for Supply Management (ISM); NBER