Second Revision Of 2nd Quarter GDP Gains Three Tenths Of A Point

A badly needed upgrade for nonresidential fixed investment helped to give a boost to the second revision of second-quarter GDP which, though still modest, now stands at an annualized rate of plus 1.4 percent for a 3 tenths gain from the first revision. Nonresidential investment is now revised into the plus column, up a quarterly 1.0 percent from a decline of 0.9 percent in the prior report and, instead of subtracting 1 tenth from overall GDP, now adds 1 tenth. Residential investment, which had been very strong in prior quarters, is unchanged at minus 7.7 percent in the quarter for a minus 3 tenth contribution.

Consumer spending was very strong in the quarter, at a 4.3 percent annualized rate and contributing 2.9 percentage points to GDP. This strength is reflected in final sales which are revised 2 tenths higher to 2.6 percent, well up from 1.2 percent in the prior two quarters. Exports are revised 6 tenths higher, up 1.8 percent as net exports added 2 tenths to the quarter's GDP. A smaller inventory drag is also a positive in the report. The GDP price index is unchanged at 2.3 percent.

The second quarter headline rate masks what are mostly positive details in the report including the gain in business investment. The early outlook for third quarter GDP is roughly in the 2-1/2 to 3 percent range.

Recent History Of This Indicator:
The third estimate for second-quarter GDP is expected to come in at a soft plus 1.3 percent, up 2 tenths from the second estimate of 1.1 percent reflecting expected improvement in nonresidential investment which however has been very weak. But masked in the data is impressive strength in consumer spending, at a 4.4 percent annualized growth rate in the second estimate. Inventory growth slowed sharply in the second quarter, pulling down GDP but also perhaps increasing the need to the replenish inventories in what would be a positive for both third-quarter growth and employment. The GDP price index, reflecting energy prices, accelerated sharply in the second quarter, to plus 2.3 percent and is expected to hold steady in the third estimate.