August 29, 2018

2Q18 Gross Domestic Product, Second Estimate (082918): An Annualized 4.2 Percent, Up From Original 4.1 Percent

Filed under: Economy,Taxes & Government — Tom @ 8:46 am

Predictions: An annualized 4.0 percent seems to be the consensus. (The Wall Street Journal also had a 4.0 percent prediction earlier this week.)

HERE IS THE REPORT (full text link with tables): Though the swing is tiny, its upward move defies reported expectations of a downward move —

Real gross domestic product (GDP) increased at an annual rate of 4.2 percent in the second quarter of 2018 (table 1), according to the “second” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.2 percent.

The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 4.1 percent. With this second estimate for the second quarter, the general picture of economic growth remains the same; the revision primarily reflected upward revisions to nonresidential fixed investment and private inventory investment that were partly offset by a downward revision to personal consumption expenditures (PCE). Imports which are a subtraction in the calculation of GDP, were revised down. (see “Updates to GDP” on page 2).

Real gross domestic income (GDI) increased 1.8 percent in the second quarter, compared with an increase of 3.9 percent in the first quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 3.0 percent in the second quarter, compared with an increase of 3.1 percent in the first quarter (table 1).

The increase in real GDP in the second quarter reflected positive contributions from PCE, nonresidential fixed investment, exports, federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment and residential fixed investment. Imports decreased (table 2).

The acceleration in real GDP growth in the second quarter reflected accelerations in PCE, exports, federal government spending, and state and local government spending, as well as a smaller decrease in residential fixed investment. These movements were partly offset by a downturn in private inventory investment and a deceleration in nonresidential fixed investment. Imports decreased after increasing in the first quarter.

Current‑dollar GDP increased 7.6 percent, or $370.9 billion, in the second quarter to a level of $20.41 trillion. In the first quarter, current-dollar GDP increased 4.3 percent, or $209.2 billion (table 1 and table 3).

The price index for gross domestic purchases increased 2.3 percent in the second quarter, compared with an increase of 2.5 percent in the first quarter (table 4). The PCE price index increased 1.9 percent, compared with an increase of 2.5 percent. Excluding food and energy prices, the PCE price index increased 2.0 percent, compared with an increase of 2.2 percent.

Updates to GDP

The percent change in real GDP was revised up 0.1 percentage point from the advance estimate, reflecting upward revisions to nonresidential fixed investment, private inventory investment, federal government spending, and state and local government spending that were partly offset by downward revisions to PCE, residential fixed investment, and exports. Imports were revised down. For more information, see the Technical Note. A detailed Key Source Data and Assumptions” file is also posted for each release. For information on updates to GDP, see the “Additional Information” section that follows.

… Corporate Profits (table 10)

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $72.4 billion in the second quarter, compared with an increase of $26.7 billion in the first quarter.

Profits of domestic financial corporations increased $16.8 billion in the second quarter, in contrast to a decrease of $9.3 billion in the first quarter. Profits of domestic nonfinancial corporations increased $63.6 billion, compared with an increase of $32.3 billion. Rest-of-the-world profits decreased $8.0 billion, in contrast to an increase of $3.7 billion. In the second quarter, receipts decreased $6.0 billion, and payments increased $2.0 billion.

I’ll update the components table shortly.

UPDATE: Here is how the second estimate compares to the first —

GDPcomponentsThru2Q18at082718

The highlighted increase in Nonresidential Fixed Investment figure is the ongoing story here. Its 2018 average is now 1.3 points. The last time we saw a two-quarter average greater than 1.30 points was during the final two quarters of 2011. The average quarterly contribution during calendar 2015 and 2016 — the last eight full quarters under the Obama administration — was only 0.07 points.

The inventory decrement to GDP still seems to overstate what happened. But we’ll have to see about that in future short-term and long-term revisions.

Overall, today’s news confirming a strong second quarter has to be heartening for those who supported the tax cuts passed in December.

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