US economic growth likely rebounded in Q2, but with weak underlying details

WASHINGTON, July 30 (Reuters): US economic growth likely rebounded in the second quarter as the flow of imports subsided, but with consumer spending anticipated to have increased moderately and business investment in equipment stalled that would grossly exaggerate the economy's health.

The Commerce Department's advance gross domestic product report on Wednesday would be heavily distorted by trade as was the case in the January-March quarter when GDP contracted for the first time in three years. Economists said President Donald Trump's protectionist trade policy, including sweeping tariffs on imports as well as delaying higher duties, had made it difficult to get a clear pulse on the economy.

They urged focusing on final sales to private domestic purchasers, viewed by economists and policymakers alike as a barometer of underlying US economic growth, which is forecast to have slowed from the first quarter's moderate growth pace.

"For the second quarter in a row, the headline GDP figures are not going to offer an accurate view of the underlying picture," said Stephen Stanley, chief US economist at Santander US Capital Markets. "The ripple effects from the Trump administration's unpredictable tariffs strategy spread widely through the economy. The primary impact was to create caution in the corporate community."

A Reuters survey of economists forecast GDP likely increased at a 2.4 per cent annualized rate last quarter after declining at a 0.5 per cent pace in the first quarter. The size of the economy is also expected to swell above $30 trillion for the first time ever before accounting for inflation.

The survey was, however, concluded before data on Tuesday showed the goods trade deficit shrinking to its smallest in nearly two years in June and inventories rising marginally. That prompted economists to upgrade their GDP growth estimates by as much as 0.8 per centage point to as high as a 3.3 per cent pace.

Trade chopped off a record 4.61 per centage points from GDP in the first quarter. Though a reversal is expected, some of the boost could be offset by low inventories, the result of the ebb in the flow of foreign merchandise. Trade and inventories are the most volatile components of GDP. Inventories added 2.59 per centage points to GDP in the January-March quarter.