US Q2 economic growth much weaker than expected

The US economy grew much less than expected in the second quarter, according to preliminary data released by the Commerce Department on Friday.

Gross domestic product grew at an annual rate of 1.2% compared to 0.8% growth in the first quarter, missing expectations of a 2.6% increase. First-quarter growth was revised down from a previous estimate of 1.1%.

Personal consumption rose at a rate of 4.2% in the second quarter, while spending on services was up 3%.

However, non-residential fixed investment fell at a 2.2% pace, marking the third consecutive quarterly decline.

The Commerce Department also released annual revisions, which showed the economy grew 2.6% in 2015 from the year before. This was the biggest yearly gain since 2006.

Dennis de Jong, managing director at UFX.com, said: “Memories of the US economy being shaken by China’s meltdown and rock bottom oil prices seem a long time ago now, but today’s GDP numbers show the world’s largest economy is facing a new set of challenges in sluggish growth and weak spending.

“Regaining momentum in the wake of an unsettled European market will be the next challenge for Janet Yellen and Co. If the US economy can get back on track and prove to be resilient in the face of Brexit then Yellen may just think it’s time for another interest rate hike come Autumn.”

Meanwhile, Capital Economics said the data makes a September interest-rate hike much less likely.