Second Quarter GDP Growth Revised to a Weaker 1.6%


The second quarter was worse than we thought. The new estimate of GDP released today revised growth down to 1.6% from the first estimate of 2.4%, according to the Bureau of Economic Analysis. Considering that the initial estimate was somewhat disappointing after much better growth in the prior two quarters, this second number is extremely discouraging. Economists mostly saw this coming, however. Their prediction for the revision was just a little worse at 1.3%. The change can be mostly blamed on weaker net exports and business investment.

But before getting into any of the specifics, here's the historical GDP growth chart:

gdp 2010-q2 rev2.png

You can see that Q2 growth now matches that of the third quarter of 2009, when the technical recovery began.

As mentioned, one of the biggest drivers of the revision was net exports. The U.S. imported even more and exported even fewer goods and services than first estimated. Exports only grew by $35.8 billion instead of $40.3 billion as was initially thought. Imports, however, were way off. They grew by $142.2 billion, well above the $127.8 first estimate. That resulted in the trade gap growing by $19.0 billion more than anticipated, pulling down the initial GDP growth estimate by 0.6%. As Americans buy more goods and services from abroad than they sell to those nations, it results in less national income.

The next big change was in private investment. Its new figure revised down growth by 0.4%. This can be almost entirely attributed to inventories, which did not grow as aggressively as anticipated.

Now, if you add both those declining factors together, you might notice that you get a 1.0% decrease -- more than the 0.8% drop reported. That's because personal consumption expenditures were actually revised up by 0.2%. This might sound like good news, but in this case, it doesn't really indicate that Americans were feeling more comfortable spending. The rise was almost entirely due to housing and utilities services spending. So this spending probably isn't all discretionary.

The only other major component not mentioned, government spending, was essentially unrevised.

Today's report doesn't contain any good news. We're learning that the hope for an exports-led recovery looks a little dimmer, as net exports are actually making things worse. Moreover, businesses are not as confident as we thought, since they're investing less in their inventories to prepare for future demand than originally believed.

This new estimate, however, is not the final word. A third revision will occur next month. At this point, it's hard to know how much it will change, but it's fairly likely that the move won't be as significant as the variance between the first and second revisions that we saw today.

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

The Time JFK Called the Air Force to Complain About a 'Silly Bastard'

51 years ago, President John F. Kennedy made a very angry phone call.

Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus


Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.


What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.


Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.


Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.


Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.


The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air



More in Business

Just In