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Economy in Brief

U.S. GDP Growth is Revised Up as Profits Weakened
by Tom Moeller  September 28, 2017

Economic growth during Q2'17 was revised higher to 3.1% (2.2% y/y) from 3.0% in the second estimate, and compared to 2.6% in the advance report. It was the quickest rate of increase since Q1'15. The latest figure matched expectations in the Action Economics Forecast Survey.

After-tax corporate profits without IVA & CCA fell 2.0% (+7.4% y/y), revised from -1.4% following a 1.3% gain during Q1. Before-tax earnings with IVA & CCA improved a lessened 0.7% (+6.4% y/y) following a 2.1% Q1 decline. Nonfinancial sector earnings rose a reduced 4.9% (7.2% y/y). Financial sector earnings declined a sharper 7.1% (+8.6% y/y) while foreign sector profits fell a larger 2.5% (+6.8% y/y).

Inventory change had a slightly increased 0.1 percentage point 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 3.5% (3.2% y/y) and imports rose 1.5% (4.1% y/y).

Growth in domestic final sales was unrevised at 2.7% (2.4% y/y). Consumer spending growth held at 3.3% (2.7% y/y), the strongest growth in four quarters. The gain in durable goods buying was lessened to 7.6% (6.4% y/y),  the quarterly strength led by a 13.2% jump (10.7% y/y) in recreational goods & vehicles buying. Home furnishings & appliance purchases rose 9.1% (6.2 % y/y), twice the growth during Q1 while spending on motor vehicles increased 0.8% (+4.4% y/y). Each of these figures were revised lower. Nondurable goods spending rose a little-changed 4.2% (2.0% y/y). Apparel purchases jumped a lessened 9.9% (2.1 % y/y) while gasoline & energy product consumption rose a strengthened 8.2% (-0.8% y/y). Services spending gained an upwardly revised 2.1% (2.3% y/y) and equaled growth during all of last year. Spending on housing & utilities grew a little-changed 3.4% (1.1% y/y) while health care spending grew 1.3% (+2.0% y/y), instead of declining slightly as previously indicated. Recreation spending increased a strengthened 1.4% (3.3% y/y).

Business fixed investment increased a little-changed 6.7% (4.3% y/y). Growth during the first half of 2017 remained the strongest in three years. Spending on equipment increased an unchanged 8.8% (3.1% y/y) as information processing equipment investment rose 10.7% (7.0% y/y), the strongest growth since Q3'15. Spending on intellectual property products rose a lessened 3.7% (3.3% y/y). Spending growth on software was lowered to 24.8% (5.0% y/y).

Investment in the residential sector was weakened as it posted a 7.3% decline (+1.3% y/y), reversing roughly half of the Q1 gain.

Government spending was little-revised at a 0.2% decline (-0.0% y/y). Federal government spending rose an unrevised 1.9% (0.1% y/y) as the gain in defense purchases continued strong at 4.7% (+0.1% y/y). State & local government spending also was little changed, showing a 1.5% (-0.2% 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 1.9% (0.9% y/y), about the same as during Q1, but up from the slight decline in 2016. The residential price index jumped a strengthened 4.6% (4.4% 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.

Chained 2009 $ (%, AR) Q2'17 (Third Estimate) Q2'17 (Second Estimate) Q2'17 (Advance Estimate) Q1'17 Q4'16 Q2'17 Y/Y 2016 2015 2014
Gross Domestic Product 3.1 3.0 2.6 1.2 1.8 2.2 1.5 2.9 2.6
  Inventory Effect 0.12 0.0 0.0 -1.5 1.1 -0.1 -0.4 0.3 -0.1
Final Sales 2.95 3.0 2.6 2.7 0.7 2.2  1.9 2.6 2.7
  Foreign Trade Effect 0.2 0.2 0.2 0.2 -1.6 -0.1 -0.2 -0.7 0.0
Domestic Final Sales 2.7 2.7 2.4 2.4 2.3 2.4 2.1 3.3 2.7
Demand Components
  Personal Consumption Expenditures 3.3 3.3 2.8 1.9 2.9 2.7 2.7 3.6 2.9
  Business Fixed Investment 6.7 6.9 5.2 7.1 0.2 4.3 -0.6 2.3 6.9
  Residential Investment -7.3 -6.5 -6.8 11.1 7.1 1.3 5.5 10.2 3.5
  Government Spending -0.2  -0.3 0.7 -0.6 0.2 -0.0 0.8 1.4 -0.6
Chain-Type Price Index
  GDP     1.0 1.0 1.0 2.0 2.0 1.6 1.3 1.1 1.8
   Personal Consumption Expenditures 0.3 0.3 0.3 2.2 2.0 1.6 1.2 0.3 1.5
     Less Food/Energy 0.9 0.9 0.9 1.8 1.3 1.5 1.8 1.3 1.6
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