Final Q2 GDP 4.6%, says BEA

The previous estimates of economic growth in the second quarter turned out to be a shade too modest. The final estimate of second-quarter growth from the Bureau of Economic Analysis puts the annualized GDP increase at 4.6%, the best quarter in more than two years, and a sharp rebound from Q1’s -2.1%:

Advertisement

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 4.6 percent in the second quarter of 2014, according to the “third” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 4.2 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in exports were larger than previously estimated (for more information, see “Revisions” on page 3).

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Real GDP increased 4.6 percent in the second quarter, after decreasing 2.1 percent in the first. This upturn in the percent change in real GDP primarily reflected upturns in exports and in private inventory investment, accelerations in nonresidential fixed investment and in PCE, and upturns in state and local government spending and in residential fixed investment that were partly offset by an acceleration in imports.

Advertisement

A significant part of this growth comes from inventory adjustments, but not the majority of it. Real final sales of domestic product, which discounts inventory expansion, came in at 3.2%. That is the second-best reading in four years, with only 2013Q4’s 3.9% surpassing it. Of course, the quarter immediately following that produced a -1.0% real final sales number, but with this report, three of the last four quarters of RFSDP has been at 3.0% or higher.

That may not be spectacular growth, but it does look like a big improvement over the stagnation of the first five years of the so-called recovery.

CNBC celebrates the outcome, but notes a couple of potential clouds on the horizon:

There were upward revisions to all categories, with the exception of consumer spending, where stronger healthcare outlays were offset by weaknesses in recreation and durable goods spending.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was unrevised at a 2.5 percent rate.

Business spending on equipment was raised to an 11.2 percent pace from a 10.7 percent rate. Businesses also invested more in nonresidential structures, such as gas drilling, as well as in research and development.

If consumer spending doesn’t pick up, then that inventory expansion will overhang Q3 and Q4’s activity. It’s not a huge disconnect, but 1.4 points isn’t chicken feed either. The business expansion and inventory expansion are bets that consumers will respond to real growth, but war and other uncertainties might make that a bet that won’t pay off very well. The results of Q1 may have been an anomaly, but it’s an outcome that could repeat itself.

Advertisement

For the moment, though, analysts are predicting brighter days ahead:

Economists expect much less volatility in growth going forward. Many say the economy will grow at an annual rate of 3 percent or better in both the current July-September quarter and in the final quarter this year.

But because of the rough start to the year, growth for all of 2014 is expected to be a lackluster 2.1 percent, little changed from last year’s 2.2 percent GDP increase.

Analysts have much a much brighter outlook for 2015. They say that the economy is finally entering a period of above-trend growth as unemployment level falls. Those growing payrolls should translate into stronger consumer spending, which accounts for about two-thirds of economic growth.

Economists at JPMorgan Chase predict growth of 3 percent next year, a significant improvement over the average annual growth rates of around 2 percent that the country has experienced since the end of the recession in June 2009.

Federal Reserve policymakers last week decided to keep a key short-term interest rate at record lows, near zero, and indicated that they planned to keep it there for a “considerable time.”

Hopefully they will be proven correct. But we could have been there years ago, or at even higher levels of growth, had we incentivized investment through better tax and regulatory policy. We have lost trillions in potential growth through policy-induced stagnation.

Advertisement

Join the conversation as a VIP Member

Trending on HotAir Videos

Advertisement
Advertisement
Advertisement
Advertisement