GDP: U.S. Economic Growth Slows Less Than Expected In Q2

by Ike Obudulu Posted on July 26th, 2019

Washington: U.S. economic growth slowed in the second quarter but still exceeded economist estimates, according to a report released by the Commerce Department on Friday.

The Commerce Department said real gross domestic product climbed by 2.1 percent in the second quarter following the 3.1 percent jump in the first quarter. Economists had expected the pace of GDP growth to slow to 1.9 percent.

The stronger than expected GDP growth was partly due to a substantial acceleration in the pace of growth in consumer spending, which soared by 4.3 percent in the second quarter after rising by 1.1 percent in the first quarter.

A 7.9 percent spike in federal government spending also contributed to the GDP growth along with a 3.2 percent increase in state and local government spending.

Meanwhile, the Commerce Department said negative contributions from private inventory investment, exports, non-residential fixed investment and residential fixed investment limited the upside.

The report also said imports, which are a subtraction in the calculation of GDP, inched up by 0.1 percent in the second quarter after tumbling by 1.5 percent in the first quarter.

“What dragged down overall GDP growth was a big drag from inventories, which subtracted 0.9% points from GDP growth, and net external trade, which subtracted 0.7% points,” said Paul Ashworth, Chief U.S. Economist at Capital Economics.

The slowdown in GDP growth compared to the first quarter reflected downturns in inventory investment, exports, and non-residential fixed investment, which were partly offset by the accelerations in consumer and government spending growth.

“Now in its longest expansion on record, the U.S. economy continues to look healthy,” said Oxford Economics’ Chief U.S. Economist Gregory Daco and U.S. Economist Jake McRobie.

They added, “However, given the persistent protectionist draft, the lingering policy uncertainty breeze, the sniffling global economy, and the cooling room temperature at home, now may be an opportune time for a Fed immunization shot.”

On the inflation front, the Commerce Department said a reading on core consumer prices, which exclude food and energy prices, showed price growth accelerated to 1.8 percent in the second quarter from 1.1 percent in the first quarter.

GDP q/q primer

Current-dollar estimates are valued in the prices of the period when the transactions occurred—that is, at “market value.” Also referred to as “nominal estimates” or as “current-price estimates.”

Real values are inflation-adjusted estimates—that is, estimates that exclude the effects of price changes.

The gross domestic purchases price index measures the prices of final goods and services purchased by U.S. residents.

The personal consumption expenditure price index measures the prices paid for the goods and services purchased by, or on the behalf of, “persons.”

Profits from current production, referred to as corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj) in the NIPAs, is a measure of the net income of corporations before deducting income taxes that is consistent with the value of goods and services measured in GDP.

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. Profits for domestic industries reflect profits for all corporations located within the within the geographic borders of the United States.

The rest-of-the-world (ROW) component of profits is measured as the difference between profits received from ROW and profits paid to ROW.

Gross domestic product (GDP)

Gross domestic product (GDP) is the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production. GDP is also equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.

Gross domestic income (GDI)

Gross domestic income (GDI) is the sum of incomes earned and costs incurred in the production of GDP. In national economic accounting, GDP and GDI are conceptually equal. In practice, GDP and GDI differ because they are constructed using largely independent source data. Real GDI is calculated by deflating gross domestic income using the GDP price index as the deflator, and is therefore conceptually equivalent to real GDP.

Why Markets Care About GDP q/q

GDP quarterly change (GDP q/q) measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy.

It is released quarterly by the Bureau of Economic Analysis of the Commerce Department about 85 days after the quarter ends

The usual effect is that is  ‘Actual’ greater than ‘Forecast’, the report is considered good for the dollar and vice versa.

While this is q/q data, it’s reported in an annualized format (quarterly change x4). There are 3 versions of GDP released a month apart – Advance, Preliminary, and Final. The Advance release is the earliest and thus tends to have the most impact;

BEA releases three vintages of the current quarterly estimate for GDP: “Advance” estimates are released near the end of the first month following the end of the quarter and are based on source data that are incomplete or subject to further revision by the source agency; “second” and “third” estimates are released near the end of the second and third months, respectively, and are based on more detailed and more comprehensive data as they become available.

Gross Domestic Product (GDP) q/q is the broadest measure of economic activity and the primary gauge of the economy’s health.

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