There was a sharp bounce back in GDP in the second quarter, with a 4 percent growth rate. This assures that a recession is not in the cards and that job gains will continue.
Gross Domestic Product, or GDP, tries to measure the monetary value of all things produced in the U.S. It also indirectly measures everyone’s income all combined. The fact that it grew solidly on the heels of a measurable decline in the first quarter is reassuring that people’s income and job gains will continue. That in turn will help build an additional pool of home buyers and increase leasing activity in commercial real estate.
The latest growth was led by solid gains in residential construction (7.5 percent gain) and a respectable growth in business spending (5.5 percent gain). Consumer spending growth was humming along at 2.5 percent. The government spending contribution was modest. The net export situation deteriorated a bit as Americans bought too many foreign-made things.
Caution Ahead: there was a sizable growth in business inventory. This trend counts as current production but also means there is less need to rapidly expand in the months ahead. GDP growth for the remainder of the year is likely to be 2 to 3 percent. For the year as a whole, accounting for the disappointing first quarter, GDP will likely expand by only 1.7 percent in 2014.
U.S. GDP growth of 1.7 percent looks puny when compared to the second biggest economy in the world. China is projected to grow by 7 to 8 percent. The gap between the two largest economies will therefore narrow.
The very fast growth in China is creating many growing pains. Pollution conditions are absolutely awful – just as was the case in the British Industrial Revolution in the past century. Some processed food was found to contain anti-freeze and some pork meat was colored to look like beef. Confucianism is being set aside in favor of materialism. Many women from watching a popular dating show are said to prefer “crying in the backseat of a BMW over laughing on the back of a bicycle.” Not too different from the U.S. reality shows of a similar genre.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.