U.S. GDP Growth Lessened While Corporate Profits Increase

Economic growth during Q2'16 was revised lower to 1.1% (SAAR, 1.2% y/y) from the initial estimate of a 1.2% gain. The revision was accompanied by the first report of corporate earnings, which showed a 4.9% rise (-2.2% y/y), the second consecutive quarter of firm increase. The GDP revision was as expected in the Action Economic Forecast Survey.

Despite the downward revision to overall economic growth, the increase in consumer spending was revised higher to 4.4% (2.7% y/y). It was the strongest increase since Q4'14. Durable goods purchases advanced at a 9.9% rate (4.8% y/y), fueled by a 15.2% strengthening (9.6% y/y) of recreational goods & vehicles purchases. Home furnishings & appliance buying rose 10.2% (7.3% y/y) while motor vehicle purchases grew 8.0% (-0.0% y/y). Nondurable goods spending gained 5.7% (3.0% y/y) as food & beverage purchases rose 7.5% (2.4% y/y), and apparel spending gained 4.9% (1.7% y/y). Gasoline spending eased 0.7% (+2.5% y/y). In the services sector, spending increased 3.1% (2.3% y/y) as housing & utilities outlays rose 4.2% (1.2% y/y). Health care outlays firmed 3.9% (4.2% y/y) but recreation outlays declined 3.5% (1.5% y/y).

Business fixed investment eased at a lessened 0.9% rate (-1.0% y/y), the least of three sequential quarterly declines. Structures outlays declined 8.4% (-7.1% y/y); they've been falling since Q4'14. Equipment outlays declined 3.7% (-1.9% y/y) as information processing equipment fell 4.8% (+4.2% y/y), but industrial equipment outlays grew 9.1% (2.4% y/y). Spending on transportation equipment declined 7.8% (-3.3% y/y). Intellectual property product spending gained 8.6% (4.7% y/y) due to a 14.4% strengthening (11.8% y/y) of software outlays. Research & development investment rose 17.1% (7.1% y/y).

Residential investment fell at a 7.7% rate (+5.7% y/y), the first decline since Q1'14.

Government purchases declined at a 1.5% annual rate (+0.7% y/y) as state & local buying fell 2.2% (+0.8% y/y). Federal government purchases eased 0.3% (+0.7% y/y) as defense spending dropped 3.1% (-0.8% y/y), about the same as in Q1.

Inventory investment subtracted a slightly increased 1.3 percentage points from economic growth. It was the largest of five consecutive quarterly reductions. The foreign trade sector added a slightly lessened 0.1 percentage point to overall economic growth. Exports grew 1.2% (-1.3% y/y) while imports improved 0.3% (0.4% y/y).

After tax corporate profits without IVA & CCA increased 4.9%, but still declined 2.2% y/y. Profits before tax with IVA & CCA declined 1.2% (-4.9% y/y). Domestic nonfinancial industry profits declined 7.7% y/y while domestic financial industry profits dropped 20.0% y/y. Profits earned abroad improved 3.6% y/y.

The GDP price index increased at a 2.3% rate (1.2% y/y), which was revised up minimally. The personal consumption price index increased 2.0% (1.0% y/y), and excluding food & beverages, it rose 1.8% (1.6% y/y). The nonresidential investment price index increased 1.2% (0.5% y/y), while the residential investment price index jumped 5.8% (3.2% y/y). The government sector price index increased 2.7% (0.7% y/y).

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, 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.

The Federal Reserve's Monetary Policy Toolkit: Past, Present, and Future is the title of today's speech by Fed Chair Janet L. Yellen, and it can be found here.