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Economy in Brief

U.S. GDP Growth Revised Up Slightly in Q2'21; Corporate Profits Surge
by Tom Moeller  August 26, 2021

• Consumer & business spending remain strong.

• Residential & government spending weakens.

• Prices continue to strengthen.

The level of economic activity remains at a record high. Real GDP increased 6.6% (SAAR) during Q2'21, revised from 6.5%. It remained the quickest since Q3'03, with the exception of the 33.8% Q3'20 rebound from the coronavirus recession. It followed a 6.3% Q1 increase. The gain matched expectations in the Action Economics Forecast Survey.

Accompanying today's report is an indication that after-tax corporate profits without IVA & CCA rose 12.8% (69.3% y/y) following a 9.4% first quarter rise. Before-tax profits with IVA & CCA adjustments rose 9.2% (43.4% y/y). Financial sector earnings surged 11.1% (15.7% y/y). Nonfinancial corporate profits strengthened 10.6% (65.6% y/y) while overseas earnings improved 2.4% (16.9% y/y).

Revisions to inventories & foreign trade offset one another in this latest report. Inventories subtracted 1.3 percentage points from GDP growth, revised from the 1.1 percentage point subtraction reported earlier. Foreign trade reduced growth by 0.2 percentage points, revised from a 0.4 percentage point subtraction. A 6.6% gain (18.3% y/y) in exports was little-revised, while import growth was shaved to 6.7% (30.5% y/y) from 7.8%.

Domestic final sales grew an unrevised 7.9% (12.9% y/y) following a 10.4% rise in Q1. Consumer spending growth of 11.9% (16.2% y/y) was revised up negligibly and followed an 11.4% Q1 increase. Durable goods outlays rose an increased 11.3% (33.7% y/y) as spending on motor vehicles rose 15.7% (37.6% y/y) after growing 58.1% in Q1. Recreational goods & vehicles improved 11.5% (24.2% y/y), revisedfrom 9.0%; outlays on furniture & appliances eased 0.2% (24.4% y/y), revised from -1.3%. Nondurable goods spending growth of 13.7% (14.5% y/y) was revised from 12.6%, after rising 15.9% in Q1. Clothing outlays grew a strengthened 38.0% (56.5% y/y). Improved spending growth on food & beverages of 2.7% (5.1% y/y) followed 18.3% growth in Q1. Outlays on gasoline & heating oil rose a strengthened 38.1% (24.9% y/y) after a 5.7% rise. Spending growth on services was lessened to 11.3% (13.8% y/y) following a 3.9% rise. Growth in health care outlays of 6.7% (22.1% y/y) recovered the 4.3% decline in Q1. Recreation outlays surged a little-changed 41.7% (56.9% y/y) and built on a 27.8% Q1 rise. Restaurant & hotel outlays surged roughly two-thirds (60.8% y/y) after a 32.9% rise.

Business fixed investment gained an improved 9.3% (13.3% y/y) after rising 12.9% in Q1. Outlays on structures fell a lessened 5.4% (-6.2% y/y), off for the sixth quarter in the last seven. Equipment investment rose a little-changed 11.6% (25.9% y/y) after a 14.1% improvement. Investment in industrial equipment strengthened roughly one-third (20.0% y/y) after a 7.2% rise, but information processing equipment investment fell an increased 8.3% (+17.0% y/y) after gaining 25.9% in Q1. Investment in intellectual property products strengthened an upwardly-revised 14.6% (12.1% y/y), following a 15.6% increase.

Residential investment fell a deepened 11.5% (+21.2% y/y) after a 13.3% gain. It was the first decline in a year.

Revisions to the government sector numbers were small. Government spending declined a deepened 1.9% but was fairly steady y/y. Federal government spending fell 5.2% (-0.8% y/y) after an 11.3% gain. Nondefense outlays dropped 10.6% (-1.9% y/y) after surging 40.8%. Defense outlays eased 0.9% and were unchanged y/y. State & local government spending edged 0.3% higher (0.4% y/y) after easing 0.1% in Q1.

The chain-weighted GDP price index surged 6.1% (4.1% y/y). It was revised from 6.0% and remained the strongest gain since Q4 1981. A 6.0% rise had been expected. The PCE price measure advanced 6.5% (3.9% y/y) after a 3.8% increase. The durable goods price index surged a record 16.8% (6.6% y/y) after gaining 2.3% in Q1. The nondurable goods price index rose 5.0% (4.2% y/y) in Q2, after improving 8.0%. The services chain price index rose 5.0% last quarter (3.2% y/y) after a 2.8% rise. The business fixed investment price index rose 0.9% (0.5% y/y), about as it did in Q1. The structures price index rose 8.9% (3.5% y/y) but the equipment price series fell 3.2% (-1.% y/y). Prices for intellectual property products rose 1.6% (1.0% y/y), revised from a 2.0% fall. The residential property price index surged 15.1% (10.8% y/y) following a 12.4% jump in Q1.

The GDP figures can be found in Haver's USECON and USNA database. USNA contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in AS1REPNA.

Chained 2012 $ (%, AR) Q2'21 (2nd Estimate) Q2'21 (Advance Estimate) Q1'21 Q4'20 Q2'21 Y/Y 2020 2019 2018
Gross Domestic Product 6.6 6.5 6.3 4.5 12.2 -3.4 2.3 2.9
  Inventory Effect (% point) -1.3 -1.1 -2.6 1.1 1.0 -0.5 0.1 0.1
Final Sales 7.9 7.7 9.1 3.4 11.3 -2.9 2.2 2.8
  Foreign Trade Effect (% point) -0.2 -0.4 -1.6 -1.6 -1.7 -0.4 -0.2 -0.2
Domestic Final Sales 7.9 7.9 10.4 5.0 12.9 -2.5 2.4 3.0
Demand Components
  Personal Consumption Expenditure 11.9 11.8 11.4 3.4 16.2 -3.8 2.2 2.9
  Nonresidential Fixed Investment 9.3 8.0 12.9 12.5 13.3 -5.3 4.3 6.4
  Residential Investment -11.5 -9.8 13.3 34.4 21.2 6.8 -0.9 -0.6
  Government Spending -1.9 -1.5 4.2 -0.5 -0.1 2.5 2.2 1.4
Chain-Type Price Index
   GDP 6.1 6.0 4.3 2.2 4.1 1.3 1.8 2.4
    Personal Consumption Expenditure 6.5 6.4 3.8 1.5 3.9 1.2 1.5 2.1
       Less Food & Energy 6.1 6.1 2.7 1.2 3.4 1.4 1.7 2.0
    Nonresidential Investment 0.9 0.9 0.8 0.4 0.5 0.6 1.3 0.8
    Residential Investment 15.2 14.5 12.4 6.5 10.8 3.3 2.9 5.6
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