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Economy in Brief

U.S. 2Q'08 GDP Growth Improved Due to Foreign Trade
by Tom Moeller July 31, 2008

U.S. real GDP growth last quarter improved to 1.9% from 0.9% during 1Q and from the small decline (revised from a slight increase) during 4Q'07. In addition, growth last year and during 2006 was revised down by 0.2 percentage points to 2.0% and 2.8%. Growth last quarter fell short of Consensus expectations for a 2.2% rate of increase.

Corporate profits were not available for 2Q but the rate of change during 1Q was revised down to -4.3% (-1.5% y/y) from -1.3%.

An improved foreign trade deficit added 2.4 percentage points to GDP growth. That was the largest addition since the third quarter of 1980. Exports grew at a strong 9.2% annual rate. The 10.2% y/y growth rate matched that of the prior three quarters. Growth in imports was negative for the third consecutive quarter at -6.6% (-1.7% y/y) and that was the steepest quarterly rate of decline since the recession year of 2001.

Inventory decumulation offset much of the addition from trade and reduced 2Q GDP growth by 1.9 percentage points. That was the largest subtraction in three years.

Growth in final sales to domestic purchasers improved to a still moderate 1.3% from an unrevised 0.1% during 1Q. The y/y growth rate of 0.8% was the weakest since late in 1991.

Residential construction continued to weigh on domestic demand as it fell at a 15.6% annual rate (-22.2% y/y). That decline subtracted 0.6 percentage points from 2Q GDP growth after single percentage point subtractions during the prior two quarters.

Growth in real personal consumption improved modestly, perhaps due to the issuance of income tax rebate checks, to 1.5% (1.3% y/y) from 0.9% growth during 1Q. Spending on autos & light trucks fell at an 18.5% (-9.4% y/y) annual rate but spending on furniture & other household equipment surged at a 13.4% (6.9% y/y) rate. Spending on apparel rose at a 10.3% (3.5% y/y) rate but spending on recreation rose only at a 0.8% (-0.5% y/y) rate. Growth in real PCE added 1.1 percentage points to 2Q real GDP growth after a 0.6% add during 1Q.

Growth in business fixed investment held steady with 1Q at a 2.3% rate (4.2% y/y). These latest rates of growth are down sharply from 4.9% increases last year and growth above 7.0% during 2006 and 2005. Last quarter, equipment investment fell at a 3.4% (0.1% y/y) rate while structures investment jumped at a 14.3% (12.9% y/y) rate.

The GDP chain price index grew at a 1.1% rate which was less than half the Consensus expectation for a 2.6% rise. The small increase was due to a 2.2% rate of decline in residential investment prices. The PCE price index grew at an accelerated 4.2% (3.7% y/y) rate.

Chained 2000$, % AR 2Q '08 1Q '08 4Q '07 2Q Y/Y 2007 2006 2005
GDP 1.9 0.9 -0.2 1.8 2.0 2.8 2.9
  Inventory Effect -1.9 -0.0 -1.0 -0.6 -0.4 0.0 -0.2
Final Sales 3.9 0.9 0.8 2.4 2.4 2.8 3.1
Foreign Trade Effect 2.4 0.8 0.9 1.6 0.6 0.2 0.0
Domestic Final Demand 1.3 0.1 -0.1 0.8 1.8 2.6 3.1
Chained GDP Price Index 1.1 2.6 2.8 2.0 2.7 3.2 3.3
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