Preliminary 2nd Quarter GDP Growth Comes in at 2.5%
That’s what the Bureau of Economic Analysis says.
The key factor in the overall second-quarter growth result was that Uncle Sam was spending less (yes, you are reading that right):
The deceleration in real GDP growth in the second quarter primarily reflected downturns in PCE (personal consumption expenditures) for durable goods and in equipment and software, decelerations in exports and in PCE for nondurable goods, a downturn in federal government spending, and a larger decrease in residential fixed investment that were partly offset by a deceleration in imports, an acceleration in PCE for services, and an upturn in private inventory investment.
….. Real federal government consumption expenditures and gross investment decreased 3.4 percent in the second quarter, in contrast to an increase of 8.8 percent in the first. National defense decreased 1.0 percent, in contrast to an increase of 8.9 percent. Nondefense decreased 7.8 percent, in contrast to an increase of 8.5 percent. Real state and local government consumption expenditures and gross investment increased 3.0 percent, compared with an increase of 2.7 percent.
That’s a 12.2% downward swing (from plus 3.4% to minus 8.8%) in the federal government element of GDP, which is roughly 20% 7% of all consumption (transfer payments like Social Security and welfare are excluded). Also note that the state/local government element didn’t change much. So for overall GDP growth to have come in at 2.5%, the rest of the economy (i.e., the private sector) had to have chugged along pretty nicely at a 5%-plus at a bit over 3% (see Update below) growth rate. Not stellar, but given the oil-price situation, I’ll take it.
I suspect that the two revisions that will take place in August and September will move 2nd quarter GDP growth closer to 3%.
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UPDATE: An early AP report starts thusly, and quotes overall government spending stats instead of just the federal element –
The economy’s growth slowed sharply in the second quarter, logging just a 2.5 percent pace as consumers tightened their belts and spending on home building dived. Inflation, however, shot up.
….. Government spending also was more subdued, growing at a pace of just 0.6 percent in the second quarter, compared with a 4.9 percent growth rate in the first quarter.
Very “clever,” reporting by AP, which chose to report the change in consumption by all governments (federal, state, and local) instead of the element (federal spending) that had the big change.
Even using the AP’s diluted numbers — If the increase in government consumption was only 0.6%, and ALL government consumption is about 20% (7% federal and about 13% state/local) of all consumption in the economy, how much did the other 80% of the economy have to grow? Answer: 3%.
