The Bureau of Economic Analysis reported that the U.S. economy grew an annualized 3.0 percent in the second quarter, revised up from an earlier estimate of 2.6 percent. This was also an improvement from the 1.2 percent growth rate in the first quarter. As a result, real GDP increased 2.1 percent at the annual rate in the first half of 2017. For the year as a whole, I am predicting real GDP growth of 2.2 percent, with 2.8 percent growth for the current third quarter. This is not far from the 2.1 percent average growth rate since the Great Recession, but I continue to believe there is upward potential in the forecast, especially for 2018, if pro-growth policies are enacted.
The higher figure in this revision stemmed largely from stronger consumer and business spending than estimated in the advance release. Personal consumption expenditures added 2.28 percentage points to top-line growth in the second quarter, up from 1.93 percent in the prior report. Likewise, the contribution from nonresidential fixed investment improved from 0.64 to 0.85 percentage points to real GDP growth for the quarter. In addition, there were marginal improvements for private inventory spending and net exports, but the drag from state and local government spending was bigger than previously thought.
Some of the highlights of the report include the following:
- Personal consumption expenditures rose by 3.3 percent in the second quarter, accelerating from the 1.9 percent pace seen in the first quarter on an increased willingness to purchase goods. Along those lines, durable goods spending was marginally negative in the first quarter with consumers more cautious, but jumped 8.9 percent at the annual rate in the second quarter. With that said, spending on motor vehicles remained softer than desired.
- Nonresidential fixed investment increased by 6.9 percent in the second quarter, extending the 7.2 percent growth rate from the first quarter. Most promisingly, equipment spending soared in the latest data to its fastest pace since the third quarter of 2015, up 8.8 percent, with 6.2 percent growth in structures spending.
- Residential investment fell by 6.5 percent in the second quarter, pulling back from really strong gains in both of the prior quarters. At the same time, private inventories stabilized in the second quarter but added just 0.02 percentage points to headline growth. The drag came mainly from the farm sector.
- The trade picture has improved so far in 2017 relative to challenges seen in each of the past two years, with positive contributions to real GDP in both the first and second quarters. Goods exports increased by 2.3 percent in the second quarter, with goods imports up by 1.6 percent. The export of services rose 6.5 percent in this release. Therefore, net exports added 0.21 percentage points to real GDP growth.
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