The nation's economy, initially estimated to have risen by a strong 4.0% in the second quarter of this year, has now seen that rate of increase revised modestly to the upside in a report issued earlier this morning. Specifically, this revision, the first of two such adjustments, indicated that the expansion proceeded at a 4.2% rate in the April-though-June period.
By comparison, the nation's economy had contracted by 2.1% in the opening three months of this year, with that earlier shortfall being largely a weather-driven event. Estimates had called for a GDP (gross domestic product) increase of 3.9% in the latest quarter. So, the upturn was more formidable than both earlier reported and most recently estimated. It should be noted that the GDP estimate released today was based on more complete source data than were available a month ago when the first estimate had been published.
Behind this increase in output were positive contributions from personal consumption expenditures, private inventory investment (which added 1.39 percent to GDP), exports, nonresidential construction, residential construction, and state and local government spending. The principal restraint on GDP in the quarter came from increased imports.
Meanwhile, the price index for gross domestic purchases, which tracks prices paid by U.S. residents, increased 1.9% in the latest three months, up from an increase of 1.4% in the opening stanza. Excluding food and energy, the so-called core rate of price growth in the period was 1.7%. That clearly suggests that inflation is not a concern at this time.
Breaking the report down, we find that consumer spending ticked up by 2.5% last quarter, more than twice the tepid 1.2% rise in the opening period. At that time, the unusually harsh winter across much of the nation kept many potential buyers away from malls and free-standing stores. Also, residential fixed investment soared by 8.4% in the second quarter, more than five times the 1.6% gain tallied in the opening period.
Taken in total, this was a solid report. However, it should be noted that these increased inventories will now need to be worked down, and that is likely to restrain GDP growth to some extent going forward. For now, we see growth stabilizing in a 3.0%-3.5% band over the next several quarters.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.