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Economy in Brief

US GDP Growth Revised Up, Profit Growth Slowed
by Tom Moeller August 30, 2006

U.S. real GDP growth during 2Q '06 was revised higher to 2.9% (AR) from the advance report of 2.5% growth. The figure about matched Consensus expectations for a 3.0% rise.

Reported for the first time, 2Q profits advanced 3.2% (20.5% y/y), far slower than the double digit increases during the prior two quarters. Profits at U.S. nonfinancial corporations grew just 0.6% (15.6% y/y), after an 11.6% surge during 1Q and financial corporate profits grew 7.8% (27.8% y/y). Earnings of overseas corporations posted a 4.0% (27.0% y/y) increase.

Growth in final sales to domestic purchasers was little revised at 1.7% (3.0% y/y) following four quarters of 3.7% growth.

Growth in business fixed investment was revised somewhat higher to a still-slowed 4.7% (7.3% y/y) rate. Spending on equipment & software continued to show a decline of 1.6% (+6.8% y/y), much of it in spending on transportation equipment, but growth in structures spending ramped up to 22.1% (8.4% y/y).

The advance in real personal consumption expenditures held at a little revised 2.6% versus 3.4% during the prior four quarters. Durables spending grew 0.4% (3.6% y/y) as motor vehicles & parts fell 0.8%, less than initially estimated.

The decline in residential investment was deepened to 9.8% (-1.2% y/y) and that reduced 2Q GDP growth by 0.6 percentage points.

Real spending by the federal government fell 4.3% (+2.1% y/y), a decline which subtracted 0.3 percentage points from GDP growth.

A stronger contribution from inventories added 0.6 percentage points to GDP growth, revised from 0.4 points. Meanwhile, an improved net export deficit added a little-revised 0.4 percentage points to growth as exports grew 5.1% (7.9% y/y) and imports rose 0.6% (6.2% y/y).

The rise in the GDP chain price index was unrevised at 3.3%, the fourth straight quarter at that rate, though the domestic final sales price deflator grew 4.0% (3.7% y/y). Less food & energy consumer prices rose 2.8% (2.3% y/y), initially reported at 2.9%.

The minutes of the latest FOMC meeting can be found here

Income, Poverty and Health Insurance in the United States: 2005 from the U.S. Census Bureau is available here.

Chained 2000$, % AR 2Q '06 (Prelim.) 2Q '06 (Advance) 1Q '06 Y/Y 2005 2004 2003
GDP 2.9% 2.5% 5.6% 3.5% 3.2% 3.9% 2.5%
  Inventory Effect -- 0.4% -0.0% 0.6% -0.3% 0.4% 0.0%
Final Sales -- 2.1% 5.6% 2.9% 3.5% 3.5% 2.5%
  Foreign Trade Effect --  0.3% -0.0% -0.1% -0.1% -0.5% -0.3%
Domestic Final Demand -- 1.6% 5.4% 3.0% 3.6% 4.0% 2.8%
Chained GDP Price Index -- 3.3% 3.3% 3.3% 3.0% 2.8% 2.1%
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