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Economy in Brief

U.S. GDP Growth Revised Higher, But Profits Ease
by Tom Moeller  August 30, 2017

Economic growth during Q2'17 was revised higher to 3.0% (2.2% y/y) from 2.6% in the advance report. It was the quickest rate of increase since Q1'15. Growth of 2.8% had been expected in the Action Economics Forecast Survey.

Reported for the first time, after tax corporate profits without IVA & CCA eased 1.4% (+8.1% y/y) and reversed the Q1 increase. Before tax earnings with IVA & CCA improved 1.3% (7.0% y/y) led by a 5.4% rise (7.7% y/y) in nonfinancial sector earnings. Financial sector earnings declined 6.2% (+4.6% y/y) while foreign sector profits fell 2.0% (+7.4% y/y).

An absence of inventory decumulation continued to account for last quarter's acceleration in GDP growth. Inventory change had an unrevised neutral effect on growth after decumulation subtracted 1.5 percentage points in Q1'17 and subtracted 0.4 percentage points during all of last year. Improvement in the foreign trade deficit added an unrevised 0.2 percentage points to growth, as it did during Q1. Exports grew a little changed 3.7% (3.3% y/y) and imports rose 1.6% (4.1% y/y).

Growth in domestic final sales was revised higher to 2.7% (2.4% y/y) from 2.4%. Consumer spending growth was revised up to 3.3% (2.7% y/y) from 2.8%. The gain in durable goods buying was strengthened to 9.0% (6.8% y/y) led by a 14.0% jump (10.9% y/y) in recreational goods & vehicles buying. Home furnishings & appliance purchases rose 9.9% (6.4% y/y) while spending on motor vehicles increased 3.4% (5.0% y/y). Each of these figures were revised higher. Nondurable goods spending rose a slightly increased 4.3% (2.0% y/y). Apparel purchases rose 10.6% (2.3% y/y) while gasoline & energy product consumption rose 6.4% (-1.2% y/y). These figures also were revised slightly higher. Services spending gained 2.1% (2.3% y/y), slightly below growth during the last three years. Spending on housing & utilities grew 3.5% (1.1% y/y) but health care spending eased 0.5% (+2.0% y/y). Recreation spending declined 1.3% (+2.6% y/y).

Business fixed investment growth of 6.9% (4.4% y/y) compared to 5.2% growth reported last month. Growth during the first half of 2017 was the strongest in three years. Spending on equipment increased 8.8% (3.1% y/y) as information processing equipment investment rose a lessened 10.7% (7.0% y/y). Spending on intellectual property products rose an increased 4.9% (3.6% y/y). Spending growth on software was raised, however, to 28.0% (5.2% y/y).

Investment in the residential sector was little revised as it posted a 6.5% decline (+1.5% y/y), reversing roughly half of the Q1 gain.

Government spending was revised to a 0.3% decline (-0.1% y/y) from a 0.7% rise. Federal government spending rose a downwardly revised 1.9% (0.1% y/y) as the gain in defense purchases was lessened to 4.7% (+0.1% y/y). State & local government spending was reduced to a larger 1.7% (-0.4% y/y) decline.

The unrevised 1.0% gain (1.6% y/y) in the GDP price index was half the increases of the prior two quarters. The PCE price index rose 0.3% (1.6% y/y) as the index less food & energy increased 0.9% (1.5% y/y), half the rise during Q1. The nonresidential fixed investment price index rose 1.8% (0.9% y/y), about the same as during Q1, but up from the slight decline in 2016. The residential price index jumped 3.4% (4.1% y/y), on par with last year's increase.

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.

Chained 2009 $ (%, AR) Q2'17 (Second Estimate) Q2'17 (Advance Estimate) Q1'17 Q4'16 Q2'17 Y/Y 2016 2015 2014
Gross Domestic Product 3.0 2.6 1.2 1.8 2.2 1.5 2.9 2.6
  Inventory Effect 0.0 0.0 -1.5 1.1 -0.1 -0.4 0.3 -0.1
Final Sales 3.0 2.6 2.7 0.7 2.3 1.9 2.6 2.7
  Foreign Trade Effect 0.2 0.2 0.2 -1.6 -0.1 -0.2 -0.7 0.0
Domestic Final Sales 2.7 2.4 2.4 2.3 2.4 2.1 3.3 2.7
Demand Components
  Personal Consumption Expenditures 3.3 2.8 1.9 2.9 2.7 2.7 3.6 2.9
  Business Fixed Investment 6.9 5.2 7.1 0.2 4.4 -0.6 2.3 6.9
  Residential Investment -6.5 -6.8 11.1 7.1 1.5 5.5 10.2 3.5
  Government Spending -0.3 0.7 -0.6 0.2 -0.1 0.8 1.4 -0.6
Chain-Type Price Index
  GDP      1.0 1.0 2.0 2.0 1.6 1.3 1.1 1.8
   Personal Consumption Expenditures 0.3 0.3 2.2 2.0 1.6 1.2 0.3 1.5
     Less Food/Energy 0.9 0.9 1.8 1.3 1.5 1.8 1.3 1.6
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