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Economy in Brief

2Q GDP Growth Slowed, Inflation Up
by Tom Moeller July 30, 2004

US real GDP growth in 2Q slowed sharply to 3.0% from the upwardly revised estimate of 4.5% growth 1Q. Consensus estimates had been for 3.7% growth last quarter. Figures back to 1Q 2001 were revised.

Price inflation at 3.2% was slightly higher than expectations for a 3.0% gain. The PCE chain price index, up 3.3%, rose the same as in 1Q but investment price inflation rose. Business equipment & software prices rose 0.2% (0.1% y/y) versus the 1.1% 1Q decline. Residential investment prices also picked up to 7.0% (5.3% y/y).Less food & energy the GDP chain price index rose 2.6% (1.9% y/y) after a 2.3% rise in 1Q.

Growth in total domestic final demand slowed to 2.7% from 3.9% in 1Q. Sharply slower growth in consumer spending was the culprit behind the 2Q growth slowdown. Real PCE grew at just a 1.0% rate versus 4.1% 1Q growth. Spending on motor vehicles & parts fell (for the third straight quarter), nondurables goods spending slipped on lower clothing purchases and services spending slowed.

Inventory investment also contributed much less to GDP growth, just a quarter of its contribution in 1Q.

Fixed investment spending actually picked up with the growth in business fixed investment more than doubling versus 1Q to 8.8% (9.9% y/y). Equipment & software spending rose at a 10.0% rate (12.8% y/y) and structures spending rose for the second quarter in the last three. Residential investment growth tripled to 15.4% (12.9% y/y).

The trade sector subtracted a marginal 0.1 percentage points from 2Q GDP growth. The trade sector has been progressively subtracting less from GDP growth versus huge negative contributions from 1997 to 2002 due to accelerated growth in exports. Exports grew at an 18.4% rate (16.2% y/y) last quarter versus 13.4% 1Q growth and declines in 2001 & 2002. Imports grew at a 9.3% rate (9.9% y/y), also more than double the growth of the prior two years.

The Federal Reserve Board's latest Beige Book on US economic activity can be found here.

"What Impact Will E-Commerce Have on the U.S. Economy?" from the Federal Reserve Bank of Kansas City can be found here.

Chained 2000$, % AR 2Q '04
1Q '04
Inventory Effect0.3%1.2%0.7%-0.1%0.5%-0.8%
Final Sales2.8%3.3%4.1%3.1%1.4%1.6%
Trade Effect-0.1%-0.8%-0.1%-0.3%-0.7%-0.2%
Domestic Final Demand2.7%3.9%4.2%3.4%2.1%1.8%
Chained GDP Price Index3.2%2.8%2.3%1.8%1.7%2.4%

Chained 2000$, % AR 2Q '04
1Q '04
Y/Y 2003 2002 2001
GDP 3.0% 4.5% 4.8% 3.0% 1.9% 0.8%
  Inventory Effect 0.3% 1.2% 0.7% -0.1% 0.5% -0.8%
Final Sales 2.8% 3.3% 4.1% 3.1% 1.4% 1.6%
  Trade Effect -0.1% -0.8% -0.1% -0.3% -0.7% -0.2%
Domestic Final Demand 2.7% 3.9% 4.2% 3.4% 2.1% 1.8%
Chained GDP Price Index 3.2% 2.8% 2.3% 1.8% 1.7% 2.4%
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