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Kimberly Amadeo

Economic Growth Better, But Still Hampered by Caution

By August 29, 2012

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The BEA's second estimate for  GDP growth in the second quarter (April-June) was 1.7%. This was up from the its initial estimate of 1.5%, so stock markets ticked up slightly higher. However, Wall Street investors weren't too exuberant, since this was still down from the first quarter's growth rate of 2%. Economic growth is falling short of the healthy 2-3% range. That's because businesses are cautiously awaiting the outcome of November's Presidential election. They are holding back on hiring, which makes consumers cautious as well. The result? Not enough demand to drive robust economic growth.

The BEA revised its estimate because it has received more data in the past month. What changed? Consumer purchases, exports and government spending were a little higher than previously thought. Imports were a little lower, which raises the GDP estimate because imports are subtracted from the nation's economic output.  (Source: BEA, GDP Advance Estimate, August 29, 2012)

For more on how GDP is measured, see What Is GDP?.  For more on what is drove economic growth in the second quarter, see Second Quarter Growth at Sluggish 1.5%.

What It Means to You

The economy will pick up steam in Q4 and in 2013, no matter who is elected. That's because a great deal of uncertainty, and caution, will be removed. This allows the engine of economic growth that was chugging along last year to resume. Last year's holiday sales hit a new record, and I expect this year to be even better -- especially if the fiscal cliff is resolved in the lame duck session of Congress.

Next Friday's employment report will probably be disappointing, thanks to the caution I mentioned earlier. This means the Federal Reserve will probably announce a bit more monetary stimulus in September or October. That should be enough to put investors, and businesses, in a good mood for the holiday season.

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