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Economy in Brief

U.S. GDP Growth Is Negative in Q2'22; Price Inflation Picks Up
by Tom Moeller  July 28, 2022

• Inventory decumulation subtracts from total.

• Domestic final demand slips.

• Foreign trade deficit lessens.

U.S. real GDP fell 0.9% (AR, +1.6% y/y) during Q2'22 following a 1.6% decline in the first quarter. While the typical recession definition has been met (two straight quarters of decline), it would equal the mildest downturn in postwar history. The Action Economics Forecast Survey expected a 0.6% increase.

Inventory liquidation reduced GDP growth by 2.0 percentage points last quarter. Partially offsetting this drag, improvement in the foreign trade deficit added 1.4 percentage points to growth as exports grew 18.0% (6.8% y/y) following a 4.8% decline and imports rose 3.1% (10.9% y/y) after surging 18.9% in the first quarter.

Real final sales to domestic purchasers eased 0.3% (+1.1% y/y) following 2.0% growth in Q1'22. Real personal consumption rose 1.0% (1.8% y/y) after increasing 1.8%. In the services area, spending surged 4.1% (4.6% y/y) after gaining 3.0%. Recreation expenditures jumped 7.4% (12.4% y/y) after rising 1.9% while restaurant & hotel spending surged 13.5% (8.4% y/y) following a 5.2% rise. Health care expenditures improved 3.8% (3.0% y/y) following a 0.4% decline, while outlays on housing & utilities rose 0.8% (1.5% y/y) after strengthening 3.6%. Real spending on durable goods declined 2.6% (-5.5% y/y) after rising 5.9%. Motor vehicle expenditures eased 0.7% (-13.9% y/y) after jumping 16.2% and furniture & appliance outlays weakened 3.8% (-6.1% y/y) after a 4.8% decline. ln the nondurable goods sector, spending fell 5.5% (-1.7% y/y) after declining 3.7%. Apparel spending rose 0.9% (-1.9% y/y) after a 5.2% drop while real gasoline expenditures weakened 8.5% (-2.3% y/y) after an 11.4% drop.

In the business investment sector, real spending eased 0.1% (+3.5% y/y) after a 10.0% jump. Structures investment fell 11.8% (-6.4% y/y), the fourth consecutive quarterly decline. Equipment investment fell 2.7% (+2.7% y/y) after surging 14.1%. Investment in computers weakened 6.2% (+10.4% y/y) following a 24.7% surge and industrial equipment investment weakened 5.3% (+6.8 y/y) after rising 13.0%. Transportation equipment investment rose 6.2% (-14.8% y/y) after declining 7.9%. Investment in intellectual property products surged 9.2% (9.6% y/y) following an 11.2% strengthening.

Real residential investment weakened 14.0% (-5.0% y/y) last quarter after edging 0.5% higher in Q1.

In the government sector, real spending declined 1.9% (-1.6% y/y) following a 2.9% drop. Federal government outlays fell 3.2% (-4.9% y/y), but defense spending rose 2.5% (-3.9% y/y) following a 9.8% decline in the first quarter. State & local government outlays weakened 1.2% (+0.4% y/y) following a 0.5% dip.

Pricing power continued to strengthen last quarter. The 8.7% increase (7.5% y/y) in the chain-type price index followed an 8.2% rise in Q1. It compared to expectations for a 7.4% rise. It was the largest increase since Q1'81, paced by a 13.7% (14.6% y/y) surge in the cost of residential investment which followed an 18.2% jump. Overall consumer prices rose 7.1% (6.5% y/y) for the second straight quarter. The nondurable consumer goods price index rose 15.5% (11.5% y/y) with higher gasoline prices. The durable goods price index rose 1.4% (7.0% y/y) after increasing 6.5%. The personal services price index rose 5.4% (4.7% y/y) after a 4.6% rise. Outside of food & energy, the PCE price index increased 4.4% (4.8% y/y) following a 5.2% gain. The business investment price index increased 8.1% (6.8% y/y) following a 7.0% increase. The government sector price index strengthened 11.6% (8.8% y/y) after a 9.8% jump.

The GDP figures can be found in Haver's USECON and USNA databases. 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.

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