With consensus estimates expecting minimal growth at best, the Bureau of Economic Analysis surprised many with a 1.7 percent increase in real GDP in the second quarter. This is the first report to incorporate new measures of intellectual property, with revised data going back to 1929, and much will be made of that. Indeed, first quarter real GDP was revised down from 1.8 percent to 1.1 percent as part of this process. While the second quarter output figure beat expectations, it is clear that the U.S. economy was operating below its potential in the first half of 2013. This has been a challenge for manufacturers, particularly in the spring months, even as they remain more upbeat about the possibilities of a better second half of the year.
Growth in the second quarter stemmed largely from consumer and business spending, much as it did in the first quarter. Consumption added 1.22 percentage points to real GDP for the quarter, with gross private fixed investment contributing 1.34 percent. As such, it suggests that real GDP might have been 2.56 percent had it not been for the drags provided by both net exports and government spending.
Consumers have helped to prop up real GDP for much of the post-recessionary period, and the second quarter was no different. Durable goods purchases added 0.48 percentage points to growth, while nondurable goods items provided another 0.31 percent. The cumulative contribution from these two have been roughly the same for four staight quarters, even as durable goods consumption has tended to be somewhat stronger. Overall consumer spending in the second quarter rose 3.4 percent. One notable finding was that the motor vehicle sector essentially stalled in the quarter after being one of the main drivers in previous quarters.
On the investment side, there were positive contributions from the housing market, nonresidential spending, and inventory replenishment. The key here was the rebound in nonresidential investment, which had contracted in the first quarter. With the exception of computer and some equipment spending, activity was higher. The new category of intellectual property added 0.15 percentage points, almost equally split between software and research and development spending.
As we have seen in other data, manufactured goods exports have been growing very slowly so far this year, with some improvements more recently. In the second quarter, growth in imports outstripped exports. Goods exports, for instance, rose 5.4 percent in the second quarter, up from the 2.8 percent decline in the first quarter. This was counterbalanced, though, by the 9.8 percent gain in goods imports for the quarter, up from a decrease of 0.2 percent in the prior quarter. In total, net exports provided a drag of 0.81 percentage points to real GDP in the second quarter, illustrating the challenges right now in the global marketplace.
Government has subtracted from real GDP in 12 of the past 15 quarters, and with tighter federal budgets expected moving forward, that is not expected to change. The across-the-board spending cuts reduced real GDP by 1.31 percentage points in the fourth quarter of 2012 and 0.82 percentage points in the first quarter of this year. With those cuts mostly in place now, the negative effect in the second quarter was just 0.08 percentage points off of real GDP.
Overall, today’s real GDP figures show just how slowly the U.S. economy has grown in the first half of 2013. The indicators for manufacturing have been equally weak, with activity up very slowly. The good news is that some of the more recent data suggest that there has been an uptick in new orders and production in June and July, with cautious optimism for the second half of the year. With that said, real GDP growth should be around 2.0 percent or so for the year as a whole, which is simply not fast enough.
Chad Moutray is the chief economist, National Association of Manufacturers.
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