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Economy in Brief

US 2Q07 GDP Above Expectations
by Tom Moeller July 27, 2007

U.S. real GDP grew 3.4% (AR) last quarter. It was both the fastest growth since 1Q06 and exceeded Consensus expectations for a 3.2% rise.

The estimates released today reflect the annual revision to the national income & product accounts (NIPAs), beginning with the estimates for the first quarter of 2004. The release includes the revised quarterly estimates of GDP, corporate profits, and personal income. In general, real GDP growth was revised down as price inflation was revised up.

Growth in final sales to domestic purchasers held about steady with 1Q at 1.7%. Growth in residential investment, however, collapsed for the fifth straight quarter. Perhaps showing some sign of reaching a bottom, the 9.2% annual rate of decline in housing during 2Q was roughly half the shortfalls during the prior year. Growth in personal consumption expenditures also moderated to a 1.3% (2.9% y/y) rate of growth versus an average 3.4% during each of the prior five quarters. Picking up the slack was a 2.3% (0.1% y/y) advance in business fixed investment in equipment & software, the firmest in three quarters, and a 22.2% (11.5% y/y) jump in business investment in structures. Also rising quickly were government purchases with a 4.3% (2.0% y/y) rise after a 0.5% 1Q decline.

An improved net export deficit added 1.6 percentage points to GDP growth. It occurred as exports boomed 6.4% (6.8% y/y) while imports fell 2.6% (+2.0% y/y).

Somewhat faster inventory accumulation added 0.2 percentage points to 2Q GDP after subtracting from GDP during the prior two quarters.

The GDP chain price index rose 2.7% versus expectations for a 3.4% rate of gain. Growth in the PCE chain price index rose to 4.3% (2.3% y/y) due to a 10.0% jump in nondurables boosted by higher fuel costs. Less food & energy the PCE chain price index grew 1.4% (2.0% y/y), its slowest rate of increase since 2003.

Chained 2000$, % AR 2Q 2007 1Q 2007 Y/Y 2006 2005 2004
GDP 3.4% 0.6% 1.8% 2.9% 3.1% 3.6%
  Inventory Effect 0.2% -0.7% -0.7% 0.1% -0.2% 0.3%
Final Sales 2.2% 1.9% 3.5% 2.8% 3.3% 3.3%
  Foreign Trade Effect 1.6% -0.2% 0.8% 0.1% 0.0% -0.5%
Domestic Final Demand 1.7% 1.6% 1.7% 2.7% 3.3% 3.8%
Chained GDP Price Index 2.7% 4.2% 2.7% 3.2% 3.2% 2.9%
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