Final 2nd-quarter GDP estimate: +3.9%

Earlier today, the Bureau of Economic Analysis released the third and final estimate of GDP growth for the 2nd quarter, and on a seasonally-adjusted, annualized basis, real GDP grew by 3.9% in the past quarter. From the BEA release:

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 3.7 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; personal consumption expenditures (PCE) and nonresidential fixed investment increased more
than previously estimated.

The increase in real GDP in the second quarter primarily reflected positive contributions from PCE, exports, 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 3.9 percent in the second quarter, after increasing 0.6 percent in the first. The acceleration in real GDP in the second quarter reflected an upturn in exports, an acceleration in PCE, a deceleration in imports, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment that were partly offset by decelerations in private inventory investment and in federal government spending.

Real final sales of domestic product increased at an annualized 3.7% rate, compared to 3.5% in the second estimate. Personal consumption expenditures increased at an annualized 3.6% rate versus 3.1% in the second estimate.

The personal purchase of goods contributed +1.20 percentage points to the change in real GDP, the highest contribution since the 2nd quarter of 2014, and the 3rd-highest quarterly contribution over the past 4 years. On the services portion of PCE, which contributed +1.23 percentage points to the change in real GDP, spending on health care contributed +0.34 percentage points, and spending on food services and accommodations contributed +0.31 percentage points. The latter is the highest contribution to GDP change from spending on food services and accommodations since the 4th quarter of 1999.

Gross private domestic investment contributed another +0.85 percentage points to GDP change, with fixed nonresidential investment contributing +0.53 percentage points and fixed residential investment contributing +0.30 percentage points. Net trade contributed +0.18 percentage points, which means the net worth of exports was greater than the net worth of imports. Government spending contributed the last +0.46 percentage points to GDP change, with all of that coming at the state and local levels, as most states completed their fiscal years. Despite the claims in the report, the “deceleration” in federal government spending meant that it merely grew at the rate of inflation, as it contributed 0.00 percentage points to real GDP change.

The news for the 3rd quarter is not nearly as rosy. August durable goods orders were weak, the September University of Michigan Consumer Index unexpectedly dipped below 90, and the September manufacturing indexes from both the Philadelphia Federal Reserve and Richmond Federal Reserve were unexpectedly in negative territory. The current consensus is for 2.5% GDP growth in the third quarter, but Moody’s high-frequency model projects 1.8% growth and the Atlanta Federal Reserve’s GDPNow model projects 1.4% growth. They may well all be high, as the “double seasonal adjustment” which was introduced 2 months ago affected the 3rd-quarter estimates between 2011 and 2014 quite negatively.

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