U.S. 2Q'08 GDP Growth Revised Sharply Higher

U.S. real GDP growth during 2Q '08 was revised sharply higher to 3.3% from the advance estimate of 1.9% growth. Last quarter's growth was the quickest since the third quarter of last year and it was faster than Consensus expectations for a revised 2.7% rate of increase.

Growth in corporate profits, however, did not share in that improvement and they posted a 9.2% (AR, -7.0% y/y) decline. The drop was led by a 21.8% (-17.4% y/y) rate of decline in domestic nonfinancial profitability. That was the sixth drop in profits in the last seven quarters. Earnings in the financial sector, conversely, continued to make up declines late last year and grew at a 26.5% rate (-8.6% y/y). Foreign sector profits fell for the second straight quarter. The 14.8% rate of decline last period left earnings up a reduced 26.4% y/y. An improved foreign trade deficit added 3.1 percentage points to GDP growth after the initial estimate of a 2.4 percentage point add. That was the largest addition since the third quarter of 1980. Exports grew at a much quicker 13.2% annual rate while growth in imports fell about as estimated earlier at a 7.5% (-2.0% y/y) rate. That was the steepest quarterly rate of decline since the recession year of 2001.

Inventory decumulation reduced 2Q GDP growth by a lesser 1.4 percentage points. That still was the largest subtraction in three years.

Growth in final sales to domestic purchasers was revised up slightly to a still moderate 1.5% versus the initial estimate of 1.3% growth. The increase followed two quarters of no change in the level of domestic demand.

Residential construction was revised down slightly and it fell at a 15.8% annual rate (-22.2% y/y). That decline subtracted 0.6 percentage points from 2Q GDP growth after subtractions exceeding 1.0 points during the prior two quarters. Growth in real personal consumption rose at a little-revised 1.7% (1.4% y/y). The tax rebate checks presumably helped growth improve from the 0.9% growth averaged during the prior two quarters. Spending on autos & light trucks fell at an 19.3% (-9.6% y/y) annual rate but spending on furniture & other household equipment jumped at a 14.2% (7.1% y/y) rate. Spending on apparel surged at a 10.7% (3.6% y/y). Growth in real PCE added 1.2 percentage points to 2Q real GDP growth after a 0.6 point add during 1Q.

Growth in business fixed investment held steady with 1Q at a little-revised 2.2% 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 3.2% (+0.2% y/y) rate while structures investment jumped at a 13.6% (12.7% y/y) rate.

The GDP chain price index was little revised and grew at a 1.2% rate. The small increase was due to a 2.1% (-1.1% y/y) rate of decline in residential investment prices. That was the fourth decline in the last five quarters. The PCE price index grew at an unrevised, accelerated 4.2% (3.7% y/y) rate. Capital spending prices rose at an accelerated 2.3% rate (1.0% y/y).

The Evolution of the World Income Distribution from the Federal Reserve Bank of Philadelphia is available here.

Chained 2000$, % AR	2Q '08 (Preliminary)	2Q '08 (Advance)	1Q '08	4Q '07	2Q Y/Y	2007	2006	2005
GDP	3.3	1.9	0.9	-0.2	2.2	2.0	2.8	2.9
Inventory Effect	-1.4	-1.9	-0.0	-1.0	-0.4	-0.4	0.0	-0.2
Final Sales	4.8	3.9	0.9	0.8	2.6	2.4	2.8	3.1
Foreign Trade Effect	3.1	2.4	0.8	0.9	1.7	0.6	0.2	0.0
Domestic Final Demand	1.5	1.3	0.1	-0.1	0.9	1.8	2.6	3.1
Chained GDP Price Index	1.2	1.1	2.6	2.8	2.0	2.7	3.2	3.3