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Economy in Brief

U.S. GDP Recovery is Surprisingly Brisk
by Tom Moeller  July 30, 2014

The economic recovery returned to a firm footing last quarter. The advance GDP estimate indicated a 4.0% rate of growth during Q2. The gain follows a 2.1% Q1 decline, revised from -2.9% and depressed by weather, inventory & foreign trade effects. The gain was the strongest since Q3'13 and outpaced expectations for a 3.0% rise in the Action Economics Forecast Survey. Figures were revised back to 1999.

Consumers resumed spending at a 2.5% rate (2.3% y/y) following a subdued 1.2% rise. The gain was powered by a 14.0% jump (6.9% y/y) in spending on durable goods. Motor vehicles purchases rose 17.5% (7.4% y/y) while furniture spending jumped 13.1% (6.9% y/y). In the nondurable goods sector, apparel spending rose 6.9% (0.4% y/y) as it recovered from a Q1 decline. Services spending nudged 0.7% higher (1.7% y/y), the rise depressed by a sharp drop in spending on housing & utilities.

Business investment growth also improved to a 5.5% rate (5.7% y/y) after a modest 1.6% rise. Spending on equipment gained 7.0% (6.1% y/y) driven by a 21.4% surge (2.9% y/y) in information processing, while structures investment rose 5.3% (7.9% y/y). Residential investment recovered 7.5% (0.9% y/y) after a 5.3% decline. Government spending increased at a 1.6% rate (-0.7% y/y), the first positive result since two 0.2% upticks during the middle of last year. The latest rise was driven by a 3.1% gain (0.9% y/y) in state & local spending. Federal government outlays fell 0.7% (-3.2% y/y) due to a 3.7% drop (-2.6% y/y) in nondefense spending. Defense outlays rose 1.0% (-3.6% y/y) following two quarters of sharp decline.

A rebound in inventory investment added 1.7 percentage points to GDP growth following subtractions during the prior two quarters. Deterioration in the foreign trade deficit subtracted another 0.6 percentage points from growth. A 9.5% gain (3.5% y/y) in exports only recovered a Q1 decline and was outpaced by an 11.7% rise (3.9% y/y) in imports.

Price inflation picked up steam, reflected by a 2.0% rise (1.6% y/y) in the GDP price index, the strongest gain in roughly two years. The PCE price index rose 2.3% (1.6% y/y), the strongest gain in three years. Prices excluding food & energy rose a heightened 2.0% (1.5% y/y). The capital goods price index rose at a reduced 1.2% rate (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 (Advance Estimate) Q1'14 Q4'13 Q2 Y/Y 2013 2012 2011
Gross Domestic Product 4.0 -2.1 3.5 2.4 2.2 2.3 1.6
  Inventory Effect 1.7 -1.2 -0.3 0.2 0.0 0.1 -0.1
Final Sales 2.3 -1.0 3.9 2.0 2.2 2.2 1.7
  Foreign Trade Effect -0.6 -1.7 1.1 -0.1 0.3 0.1 0.0
Domestic Final Sales 2.8 0.7 2.7 2.1 1.9 2.1 1.7
Demand Components
Personal Consumption Expenditures 2.5 1.2 3.7 2.3 2.4 1.8 2.3
Business Fixed Investment 5.5 1.6 10.4 5.7 3.0 7.2 7.7
Residential Investment 7.5 -5.3 -8.5 0.9 11.9 13.5 0.5
Government Spending 1.6 -0.8 -3.8 -0.7 -2.0 -1.4 -3.0
Chain-Type Price Index
GDP      2.0 1.3 1.5 1.6 1.5 1.8 2.1
Personal Consumption Expenditures 2.3 1.4 1.0 1.6 1.2 1.8 2.5
 Less Food/Energy 2.0 1.2 1.3 1.5 1.3 1.8 1.5
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