Q2 GDP Got Revised Way Up

GDP growth in the second quarter was revised upward to an annualized rate of 2.5% from 1.7%.

Analysts were expecting an upward revision to 2.2% .

Q1 GDP grew at a 1.1% pace.

The revision was led by gains in durable goods spending, which climbed 6.1% compared with 5.8% in Q1.

Capital Economics’ Paul Ashworth says the strong print will nudge the “imminent Fed tapering” needle forward:

The upward revision to second-quarter US GDP growth, which is now estimated to have been 2.5% annualised rather than 1.7%, should give Fed officials more confidence that the recovery is gathering steam as the fiscal drag begins to fade. Under those circumstances, we still think the Fed will begin tapering its monthly asset purchases in September, particularly with weekly initial jobless claims, which fell back to 331,000 last week, pointing to a further gradual improvement in the labour market. That said, it’s no certainty and August’s non-farm payroll figures will be watched closely.

Here’s the full release:

Real gross domestic product — the output of goods and services produced by labour and property located in the United States — increased at an annual rate of 2.5 per cent in the second quarter of 2013 (that is, from the first quarter to the second quarter), according to the “second” estimate released by the Bureau of Economic Analysis.

In the first quarter, real GDP increased 1.1 per cent.

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 1.7 per cent.

With this second estimate for the second quarter, the increase in exports was larger than previously estimated, and the increase in imports was smaller than previously estimated (see “Revisions” on page 3).

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, and residential fixed investment that were partly offset by a negative contribution from federal government spending.

Imports, which are a subtraction in the calculation of GDP, increased. The acceleration in real GDP in the second quarter primarily reflected upturns in exports and in nonresidential fixed investment and a smaller decrease in federal government spending that were partly offset by an acceleration in imports and decelerations in private inventory investment and in PCE.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 0.3 per cent in the second quarter, unrevised from the advance estimate; this index increased 1.2 per cent in the first quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 0.9 per cent in the second quarter, compared with an increase of 1.4 per cent in the first.

Real personal consumption expenditures increased 1.8 per cent in the second quarter, compared with an increase of 2.3 per cent in the first. Durable goods increased 6.1 per cent, compared with an increase of 5.8 per cent. Nondurable goods increased 1.8 per cent, compared with an increase of 2.7 per cent. Services increased 1.1 per cent, compared with an increase of 1.5 per cent.

Real nonresidential fixed investment increased 4.4 per cent in the second quarter, in contrast to a decrease of 4.6 per cent in the first. Nonresidential structures increased 16.1 per cent, in contrast to a decrease of 25.7 per cent. Equipment increased 2.9 per cent, compared with an increase of 1.6 per cent. Intellectual property products decreased 0.9 per cent, in contrast to an increase of 3.7 per cent. Real residential fixed investment increased 12.9 per cent, compared with an increase of 12.5 per cent.

Real exports of goods and services increased 8.6 per cent in the second quarter, in contrast to a decrease of 1.3 per cent in the first. Real imports of goods and services increased 7.0 per cent, compared with an increase of 0.6 per cent.

Real federal government consumption expenditures and gross investment decreased 1.6 per cent in the second quarter, compared with a decrease of 8.4 per cent in the first. National defence decreased 0.6 per cent, compared with a decrease of 11.2 per cent. Nondefense decreased 3.2 per cent, compared with a decrease of 3.6 per cent. Real state and local government consumption expenditures and gross investment decreased 0.5 per cent, compared with a decrease of 1.3 per cent.

The change in real private inventories added 0.59 percentage point to the second-quarter change in real GDP, after adding 0.93 percentage point to the first-quarter change. Private businesses increased inventories $US62.6 billion in the second quarter, following increases of $US42.2 billion in the first quarter and $US7.3 billion in the fourth.

Real final sales of domestic product — GDP less change in private inventories — increased 1.9 per cent in the second quarter, compared with an increase of 0.2 per cent in the first.

Gross domestic purchases

Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — increased 2.4 per cent in the second quarter, compared with an increase of 1.4 per cent in the first.

Gross national product

Real gross national product — the goods and services produced by the labour and property supplied by U.S. residents — increased 3.0 per cent in the second quarter, compared with an increase of 0.6 per cent in the first. GNP includes, and GDP excludes, net receipts of income from the rest of the world, which increased $US16.8 billion in the second quarter after decreasing $US17.5 billion in the first; in the second quarter, receipts increased $US1.3 billion, and payments decreased $US15.5 billion.

Current-dollar GDP

Current-dollar GDP — the market value of the nation’s output of goods and services — increased 3.2 per cent, or $US132.6 billion, in the second quarter to a level of $US16,667.9 billion. In the first quarter, current-dollar GDP increased 2.8 per cent, or $US115.0 billion.

Gross domestic income

Real gross domestic income (GDI), which measures the output of the economy as the costs incurred and the incomes earned in the production of GDP, increased 2.5 per cent in the second quarter, compared with an increase of 2.4 per cent (revised) in the first. For a given quarter, the estimates of GDP and GDI may differ for a variety of reasons, including the incorporation of largely independent source data. However, over longer time spans, the estimates of GDP and GDI tend to follow similar patterns of change.

Revisions

The upward revision to the per cent change in real GDP primarily reflected an upward revision to exports, a downward revision to imports, and an upward revision to private inventory investment that were partly offset by a downward revision to state and local government spending.

Advance Estimate Second Estimate (Per cent change from preceding quarter)

Real GDP…………………………………… 1.7 2.5 Current-dollar GDP………………………….. 2.4 3.2 Gross domestic purchases price index………….. 0.3 0.3

Corporate Profits

Profits from current production (corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)) increased $US78.3 billion in the second quarter, in contrast to a decrease of $US26.6 billion in the first. Taxes on corporate income increased $US10.5 billion, in contrast to a decrease of $US25.0 billion. Profits after tax with IVA and CCAdj increased $US67.9 billion, in contrast to a decrease of $US1.7 billion.

Dividends increased $US273.8 billion in the second quarter, in contrast to a decrease of $US103.8 billion in the first. The large second-quarter increase primarily reflected dividends paid by Fannie Mae to the federal government. Undistributed profits decreased $US205.9 billion, in contrast to an increase of $US102.1 billion. Net cash flow with IVA — the internal funds available to corporations for investment — decreased $US194.6 billion, in contrast to an increase of $US140.7 billion.

_____ BOX. Profits from current production reflect the depreciation of fixed assets valued at current cost using consistent depreciation profiles. These profiles are based on used-asset prices and do not depend on the depreciation-accounting practices used for federal income tax returns. The IVA and CCAdj are adjustments that convert inventory withdrawals and depreciation of fixed assets reported on a tax-return, historical-cost basis to the current-cost economic measures used in the national income and product accounts. _____

Corporate profits by industry

Domestic profits of financial corporations increased $US14.3 billion in the second quarter, in contrast to a decrease of $US4.1 billion in the first. Domestic profits of nonfinancial corporations increased $US50.4 billion, in contrast to a decrease of $US3.1 billion.

The rest-of-the-world component of profits increased $US13.6 billion in the second quarter, in contrast to a decrease of $US19.6 billion in the first. This measure is calculated as the difference between receipts from rest of the world and payments to rest of the world.

Gross value added of nonfinancial domestic corporate business

In the second quarter, real gross value added of nonfinancial corporations increased, and profits per unit of real value added increased. The increase in unit profits reflected decreases in both the unit nonlabor and labour costs incurred by corporations; unit prices were unchanged.

* * *

BEA’s national, international, regional, and industry estimates; the Survey of Current Business; and BEA news releases are available without charge on BEA’s Web site at www.bea.gov. By visiting the site, you can also subscribe to receive free e-mail summaries of BEA releases and announcements.

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