The U.S. economy continues to expand at a pace below its long-term average. Revised data show the economy grew at a 1.1 percent annual rate in the second quarter compared with a long-term average annual rate of 3.2 percent. Consumer spending, a key driver, rose 4.4 percent and contributed 2.9 percentage points to overall economic growth. Business fixed investment remains weak, hampered by poor performance in the domestic energy industry, but our conclusion remains that it may well improve in the second half of 2016.
Residential investment has recovered from the depths of the Great Recession (Chart 1), but activity such as new home construction and home sales remain well below pre-recession levels. One area that has done well is home improvement. Home improvement spending accounts for about 30 percent of residential investment (Chart 1). While Americans may not be in the market for new homes, they are spending freely to fix up their current ones.