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Economy in Brief

Foreign Trade Drag Reduced 2Q US GDP Growth, Domestic Corporate Profits Slower But Firm
by Tom Moeller August 27, 2004

US real GDP growth last quarter was revised slightly lower to 2.8% from 3.0%, about in line with Consensus expectations.

Higher exports did not raise US output as much as previously estimated. Export growth in 2Q was revised down to 6.2% (AR, 10.5% y/y) from the initial estimate of 18.4% growth. Combined with an upward revision to import growth to 14.1% (11.0% y/y) from 9.3%, that raised the trade sector's subtraction from GDP growth to 1.4 percentage points. News of the record (by far) trade deficit of $55.5B in June drove the revision.

Corporate profit growth slowed considerably to 0.6% (AR, 18.4% y/y) from 13.6% growth in 1Q and 30.2% in 4Q03. Profits in the financial and the foreign sectors fell. In the US nonfinancial corporate sector profit growth remained firm at 20.4% (AR, 26.4% y/y) as firms grew more efficient, indicated by the 3.8% (19.6% y/y) rise in profits per unit of output.

Growth in domestic final demand was a stronger 3.4% versus the initial estimate of 2.7% growth. Real PCE growth was revised up to 1.6% from 1.0% and business fixed investment spending was raised to 12.1% (10.7% y/y) from 8.8%. Growth in equipment & software spending was raised to 13.7% (13.7% y/y) from 10.0%. Residential investment growth was about unchanged at a surging 14.8% (12.8% y/y).

Inventory investment contributed a somewhat larger 0.7 percentage points to growth than the 0.3 points initially estimated, and that was about half the positive contribution in 1Q.

Prices grew the same 3.2% as initially estimated.

This 2001 paper from the Federal Reserve Bank of New York presents an overview of labor & total factor productivity and discusses why it is such an important topic.

Fed Chairman Alan Greenspan's testimony today in Jackson Hole, Wyoming is available here.

Chained 2000$, % AR 2Q '04
(Prelim.)
2Q '04
(Advance)
1Q '04
(Final)
Y/Y 2003 2002 2001
GDP 2.8% 3.0% 4.5% 4.7% 3.0% 1.9% 0.8%
  Inventory Effect 0.7% 0.3% 1.2% 0.7% -0.1% 0.5% -0.8%
Final Sales 2.1% 2.8% 3.3% 4.0% 3.1% 1.4% 1.6%
  Trade Effect -1.4% -0.1% -0.8% -0.1% -0.3% -0.7% -0.2%
Domestic Final Demand 3.4% 2.7% 3.9% 4.3% 3.4% 2.1% 1.8%
Chained GDP Price Index 3.2% 3.2% 2.8% 2.3% 1.8% 1.7% 2.4%
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