Q2 GDP Revised Higher To 4.2%, Strongest In 4 years

After bursting higher in second quarter, when according to the first estimate of Q2 GDP, the US economy grew at an annualized 4.1% rate, moments ago the BEA reported that according to its second estimate of second quarter GDP, the US grew at an even stronger, 4.23% rate – higher than the 4.0% estimate, and the highest since the summer of 2016 – at a time when the Trump’s $1.5 trillion fiscal stimulus was boosting the US economy.

The upward revision to the second estimate of GDP growth mainly reflected upward revisions to business investment in intellectual property products and downward revisions to imports.

While most of the components improved, there was a pullback in personal consumption which rose 3.8% in 2Q, down from 4.0% in the first estimate, and below the 3.9% estimated.

In terms of contribution to the bottom line, the various line items were as follows:

  • Personal Consumption: 2.55%, down from 2.68%
  • Fixed Investment:1.07%, up from 0.94%
  • Change in Private Inventories: -0.97%, up from -1.00%
  • Exports: 1.10%, down from 1.12%
  • Imports: 0.07%, up from -0.06%
  • Government consumption: 0.41%, up from 0.37%

A big contributor to growth was nonresidential fixed investment, or spending on equipment, structures and intellectual property rose 8.5% in 2Q after rising 11.5% prior quarter

Separately, the GDP price index rose 3.0% in 2Q after rising 2.0% prior quarter, while core PCE q/q rose 2.0% in 2Q after rising 2.2% prior quarter as inflation cooled modestly.

Also in today’s report, the BEA said that corporate profits rose 1.2% in prior quarter; y/y corporate profits up 7.7% in 2Q after rising 5.9% prior quarter, and were broken down as follows:

  • Financial industry profits increased 3.8% Q/q in 2Q after falling 2.1% prior quarter
  • Federal Reserve bank profits down 4.7% in 2Q after falling 2.8% prior quarter
  • Nonfinancial sector profits rose 5.1% Q/q in 2Q after rising 2.7% prior quarter

While the number is largely irrelevant, as it references a period nearly 3 months old, it confirms that the economy was heating up headed into the summer. The bigger question of what GDP will do this quarter will be answered in two months, however according to high frequency economic indicators, all signs point to a continuation of the trend, especially since the impact of Trump’s fiscal boost is expected to peak some time around now.

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Author: Tyler Durden

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