2Q GDP Hits 3%, Yet 78% Still Live Paycheck to Paycheck

The Commerce Department reported yesterday that 2Q GDP rose at an annual rate of 3.0%, the best showing in more than two years and up from the initial estimate of 2.6%. The report was stronger than expected and was spurred by a bounce in consumer spending and business investment.

While yesterday’s report was a welcome surprise, it followed growth in the 1Q of only 1.2%. So for the first half of the year, GDP grew at an average rate of only 2.1%. Most economists believe that GDP growth in the 3Q will be above 3%. The last time the US economy had back-to-back 3% quarters was in 2014.

The US economy has now grown to $19.247 trillion, the largest ever as you can see below.














     Source: Commerce Department, CNBC

As noted above, consumer spending was the main engine for the strength in the 2Q, rising a revised 3.3%. That was up from the government’s original estimate of a 1.9% gain. Americans spent more on goods and services, including car purchases.

Outlays for business investment rose at a revised 0.6% clip in the 2Q, up from a prior 0.4% estimate. The government reported that corporate adjusted pretax profits were up 6.7% over the past year, despite falling at a 0.5% quarterly rate in the 2Q.

The report also confirmed that inflation has moved away from the Federal Reserve’s 2% annual target in the 2Q. Inflation as measured by the Fed’s preferred Personal Consumption Expenditures price index decelerated to a 1.6% annual pace in the quarter, down from a 2% rate in the 1Q. Core PCE (minus food and energy) slumped to a 1.5% rate in 2Q from a 1.8% rate in the 1Q.

Weaker than expected PCE inflation raises the question once again of whether the Fed will go ahead with another interest rate hike this year. The central bank had penciled in three hikes this year and has already engineered two increases in the first half of the year.

As I discussed in this space last week, it now looks more likely that the Fed will announce the start of reducing its balance sheet at the end of its September 19-20 FOMC meeting. Then they may look at hiking the Fed Funds rate a third time at the December 12-13 meeting, if the economy still looks firm.

Consumer Confidence Highest Since 2001

In another encouraging report, consumer confidence as measured by the Conference Board was at the highest level since 2001 as of mid-August.











The Conference Board’s data are in sync with other recent surveys. Sentiment climbed to a seven-month high in preliminary August data from the University of Michigan, and the Bloomberg Consumer Comfort Index posted the sixth consecutive gain to reach a 16-year high in the week ended August 20.

78% of Full-Time Workers Live Paycheck to Paycheck

Yet not all the latest economic news was good. A new report from CareerBuilder.com, a nationwide headhunting firm, found that the vast majority of Americans still live paycheck to paycheck.

It seems that no matter how much you earn, getting by is still a struggle for most people these days. Even though this has been the second-longest economic recovery on record, more Americans are struggling to make ends meet.

Some 78% of full-time workers said they live paycheck to paycheck, up from 75% last year, according to the latest report from CareerBuilder.

Overall, 71% of all US workers said they’re now in debt (not counting home mortgages), up from 68% a year ago, CareerBuilder found. While 46% said their debt is manageable, 56% said they were in over their heads. Only about 56% said they are able to save $100 or less each month, according to the report.

Even many making over six figures said they struggle to make ends meet, the report said. About 10% of those making $100,000 or more said they usually or always live paycheck to paycheck, and 59% of those in that salary range said they were in the red (taking on debt).

While household income has grown modestly over the past decade, it has failed to keep up with the increased cost-of-living over the same period. Even though this is the second-longest economic recovery on record, over three-fourths of Americans still live paycheck to paycheck.

CareerBuilder polled over 2,000 hiring and human resource managers and more than 3,000 full-time employees between May and June. I’ll have more to say about this in the weeks ahead.



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