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Home Building Drags as GDP Increases

Ginnie Mae MBSGross domestic product has slowed down, but not as much as expected, according to the latest report from the Bureau of Economic Analysis. In Q2 2019, GDP increased at an annual rate of 2.1%, compared to Q1 2019’s rate of 3.1%. 

According to the Bureau, the increase in Real GDP reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and state and local government spending. This was partly upset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment.

Q2 2019’s growth exceeded the National Association of Homebuilder’s (NAHB) forecast of 1.6%, reflecting the 21st consecutive quarter of growth. The NAHB notes that residential fixed investment (home building and remodeling) has been a drag on economic growth for six consecutive quarters, due to the housing affordability crisis.

The Federal reserve will soon be meeting to discuss whether to slash interest rates for the first time in nearly a decade, and their decision may be based on the Bureau’s report. According to the New York Post, the Fed is expected to cut interest rates by one quarter of 1%, Wall Street economists expected growth of around 2% for Q2 2019. As Friday’s report exceeded expectations, the Post notes that the financial markets are going to have some “pretty nervous days” until the Fed makes its decision on July 31. The Fed has said it will only cut rates to boost a slowing economy. 

Bloomberg reports that Fed Chairman Jerome Powell is looking to ease interest rates by around a quarter of a percentage point at the July meeting. Earlier this year, Powell stated that though the economy remained strong, "crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook."

Meanwhile, President Donald Trump recently signaled to the Fed that he believes now is the best time to cut interest rates.

“Very inexpensive, in fact productive, to move now,” the President tweeted. “The Fed raised & tightened far too much & too fast.”

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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