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Economy in Brief

U.S. GDP Growth Is Revised Up; Corporate Profits Surge
by Tom Moeller  August 28, 2014

The economic recovery garnered more strength than estimated earlier. The second GDP estimate for Q2 indicated a 4.2% rate of growth, revised up from 4.0%. The gain followed a 2.1% Q1 decline and beat expectations for 3.9% growth in the Action Economics Forecast Survey. The bulk of the upward revision was due to strengthened growth in business fixed investment.

Accompanying the revision was the first estimate of corporate profits. The 8.0% rise (-0.3% y/y) in pretax earnings followed a 9.4% Q1 decline and was the strongest gain since Q3 2010. Earnings at nonfinancial firms gained 10.6% (1.4% y/y). Financial corporate profits rose 7.3% (-6.8% y/y) and earnings from abroad improved 1.2% (2.4% y/y).

Business fixed investment drove GDP growth last quarter. The 8.4% gain (6.4% y/y) was revised from 5.5% and reflected a 10.7% rise (7.0% y/y) in equipment spending. Information processing equipment realized a 26.3% gain (3.9% y/y) and industrial equipment rose 27.1% (14.6% y/y). Spending on intellectual property products improved 4.5% (3.9% y/y). Structures spending grew 9.5% (9.0% y/y).

Consumer spending growth was unchanged at 2.5% (2.3% y/y), spurred by a 19.9% gain (7.9% y/y) in motor vehicles & parts. Furniture and durable household equipment improved 12.6% (6.7% y/y) and spending on clothing increased 5.3%, unchanged y/y. Spending on services gained 0.8% (1.8% y/y). Recreation spending increased 3.4% (1.5% y/y) but housing & utilities declined 3.3% (0.6% y/y). Residential building grew at a 7.2% rate (0.8% y/y) and recovered a 5.3% weather-induced decline in Q1. Government spending increased 1.4% (-0.8% y/y) after a 0.8% decline. It reflected a 2.9% increase (0.8% y/y) in state & local and a 0.9% dip (-3.2% y/y) in federal government outlays.

A quickened rate of inventory accumulation added 1.4 percentage points to growth last quarter, revised from 1.7 points. The addition recouped two quarters of inventory liquidation. Deterioration in the foreign trade subtracted a little- revised 0.4 percentage points from growth. A 10.1% rise (3.7% y/y) in exports trailed an 11.0% gain (3.7% y/y) in imports.

Price inflation was unrevised. The 2.1% rise (1.7% y/y) in the chain-type price index followed a 1.3% increase in Q1. The acceleration reflected a 2.3% rise (1.6% y/y) in the personal consumption price index. The business fixed investment price index gained 1.2% (1.3% y/y).

The latest GDP figures can be found in Haver's USECON and USNA databases; USNA contains basically all of the Bureau of Economic Analysis' detail in the national accounts, including the integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

Chained 2009 $, %, AR Q2'14 (Second Estimate) Q2'14 (Advance Estimate) Q1'14 Q4'13 Q2 Y/Y 2013 2012 2011
Gross Domestic Product 4.2 4.0 -2.1 3.5 2.5 2.2 2.3 1.6
  Inventory Effect 1.4 1.7 -1.2 -0.3 0.3 0.0 0.1 -0.1
Final Sales 2.8 2.3 -1.0 3.9 2.2 2.2 2.2 1.7
  Foreign Trade Effect -0.4 -0.6 -1.7 1.1 0.0 0.3 0.1 0.0
Domestic Final Sales 3.1 2.8 0.7 2.7 2.2 1.9 2.1 1.7
Demand Components
Personal Consumption Expenditures 2.5 2.5 1.2 3.7 2.3 2.4 1.8 2.3
Business Fixed Investment 8.4 5.5 1.6 10.4 6.4 3.0 7.2 7.7
Residential Investment 7.2 7.5 -5.3 -8.5 0.8 11.9 13.5 0.5
Government Spending 1.4 1.6 -0.8 -3.8 -0.8 -2.0 -1.4 -3.0
Chain-Type Price Index
GDP      2.1 2.0 1.3 1.5 1.7 1.5 1.8 2.1
Personal Consumption Expenditures 2.3 2.3 1.4 1.0 1.6 1.2 1.8 2.5
 Less Food/Energy 2.0 2.0 1.2 1.3 1.5 1.3 1.8 1.5
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