The Commerce Department revised its second estimate of Q2 economic growth from +1.7 percent to +2.5 percent.
The Commerce Department revised its second estimate of Q2 economic growth from +1.7 percent to +2.5 percent. Improvements in net exports were the principal driver. Consumer spending, roughly two-thirds of the nation’s GDP, fell to a +1.8 percent growth pace after rising +2.3 percent during the first quarter. Purchases added 1.2 percentage points to the growth number. This would put Q2 growth more than double the +1.1 percent pace experienced during Q1 despite a lower level in consumer spending. A +9.9 percent increase in business investment marks the difference.
The report also notes that consumers’ purchasing power improved, as well, as disposable income (adjusted for inflation) rose at a +3.2 percent annualized rate from April to June after a +7.9 percent decrease during the first quarter.
In other reports this week, the Conference Board’s confidence index was unchanged in August at 81.5. It included a sizeable gain in consumers’ outlook on income but a negative reading on current business conditions.
What does this mean for credit unions? Catalyst Strategic Solutions’ Director and Chief Strategist Brian Turner says, “Certainly the outlook for higher economic growth would normally provide a level of stability that the nation needs. But the fact that consumer spending is not providing the lion’s share dampens that outlook.”
According to Turner, first quarter growth was met with a strong showing from auto sales, reaching an annualized pace of 15.7-million units.
“Credit unions saw an unseasonal increase in vehicle loan demand during the first quarter which eased the industry’s consumer market share closer to 9 percent,” notes Turner. “But the drop in spending during the second quarter may have stalled any hope for sustained growth.”
Turner says the question remains how many of the loans extended during the first quarter were those destined for late-summer/early fall when vehicle lending typically hits its annual peak in demand.
“Spending is a function of disposable income, net household wealth and employment outlook. Recent improvement in home values have contributed to household wealth but it has been offset by stagnant wage growth, falling stock prices and very little improvement in the job outlook,” adds Turner. “This suggests upward trends in share growth but continued volatility for loan demand over the next twelve to eighteen months.”