Who ever thought 1.7% growth would look so good? That was the pace of the U.S. economy in the second quarter according to the Bureau of Economics Analysis. Its second and sort-of-final* revision lifted the annualized rate of growth slightly from the prior estimate of 1.6%. That initial correction, reported in August, pulled down GDP significantly, however, from its first estimate of 2.4%. Although the change was small, there are a few things to note about today's new numbers.
Let's start with the chart, which looks mostly the same:
The second quarter had the third lowest growth rate since the final quarter of 2009. In the third quarter of last year GDP grew at a 1.6% clip.
There's some good and some bad in this revision. The best news is consumer spending. It was revised higher, adding an additional 0.16% to the GDP growth rate. Spending on services was the component that changed the most from the last revision. In particular household-related services and health care services both contributed more to expenditures than was thought.
Business investment was also higher than economists estimated, contributing 0.13% more than the second revision reflected. Non farm business inventories made up most of that revision, adding 0.19% more to GDP growth than the second revision.
So if consumer spending added 0.16% to GDP growth and business investment added 0.13%, then why did the rate only rise by only 0.1%? Some components also declined. You might recall that the first revision's drastic decline was mostly due to much fewer imports than initially estimated. In fact, today's second revision shows that imports were even weaker than the prior revision implied. Compared to the prior estimate, imports brought down GDP growth by an additional 0.13%.
Finally, government expenditures were also lower than the prior revision implied. In today's estimate, state government expenditures brought GDP growth 0.06% lower than the first revision reflected.
While it's hard to get excited about a change so slight, even a small upward revision is better than the alternative. A consensus of analysts expected no change, and some more bearish economists thought the second revision would bring GDP even lower. Nouriel Roubini, in particular, predicted the today's revision would pull down GDP further, implying that it could be as low as 1%. But today's changes do provide mixed news. While it's great that consumer and business sentiment was a little stronger than we thought, it's disappointing that imports were even weaker. Few will likely complain about lower government purchases, however.
* This is considered to be the final revision in the near-term, but over the next few years, additional revisions may occur.
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