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Economy in Brief

US GDP Growth Little Revised, Profits Quite Firm
by Tom Moeller August 31, 2005

2Q05 US real GDP growth was little revised at 3.3% (AR) as revisions to foreign trade and inventories roughly offset one another. Consensus expectations had been for 3.4% growth.

Operating corporate profits rose a firm 6.1% (17.7%) following a 5.6% gain during 1Q. The increase came despite a 2.2% decline (+9.1% y/y) in financial sector earnings and a modest 1.1% increase (10.6% y/y) increase in foreign earnings. US nonfinancial corporate sector earnings rose 11.9% (24.1% y/y), the strongest quarterly increase in three years.

The positive contribution to GDP growth from a shallower foreign trade deficit was lessened to 1.2 percentage points as import growth was revised to show a slight q/q increase rather than a 2.0% decline. Export growth was raised slightly to 13.2% (8.3% y/y).

The negative growth contribution from inventories was lessened and offset the trade revision, but the 2.0 percentage point drag still was the third in the last four quarters and was the largest since 2000.

Growth in domestic demand was reduced to 3.9%. Business fixed investment growth was notched down a bit to 8.4% (AR, 9.1% y/y) from 9.0% and growth in real PCE similarly was lowered to 3.0% (3.8% y/y) from 3.3%. Residential building growth of 9.8% (5.8% y/y) was unrevised.

The chain price index was unrevised at 2.4% and the chain price index for domestic final demand was lowered slightly to 3.1% (2.8% y/y).

The minutes to the latest meeting of the FOMC can be found here.

Chained 2000$, % AR 2Q '05 (Prelim.) 2Q '05 (Advance) 1Q '05 Y/Y 2004 2003 2002
GDP 3.3% 3.4% 3.8% 3.6% 4.2% 2.7% 1.6%
  Inventory Effect -2.0% -2.3% 0.3% -1.4% 0.3% 0.0% 0.4%
Final Sales 5.4% 5.8% 3.5% 4.2% 3.9% 2.7% 1.2%
  Foreign Trade Effect 1.2% 1.6% -0.4% 0.1% -0.5% -0.3% -0.6%
Domestic Final Demand 3.9% 4.0% 3.7% 4.1% 4.4% 3.0% 1.8%
Chained GDP Price Index 2.4% 2.4% 3.1% 2.4% 2.6% 2.0% 1.7%
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