United States: GDP growth revised upwards in Q2
August 30, 2017
The second estimate for GDP growth suggests that the U.S. economy was on more solid footing than previously thought in Q2. GDP growth was revised four-tenths higher to a seasonally-adjusted annualized rate (SAAR) of 3.0% in the second quarter of the year, according to the second estimate released by the Bureau of Economic Analysis (BEA) on 30 August. This came in slightly above market expectations of a smaller upward revision to 2.8% and marked a solid turnaround from the first quarter’s meagre 1.2% increase. The year-on-year expansion was confirmed at 2.1% in Q2, which was a notch above the 2.0% increase seen in Q1.
The bulk of the revision was recorded in stronger household consumption than initially estimated. Personal consumption expenditure grew 3.3% in seasonally-adjusted annualized terms in the second quarter (previously estimated: +2.8% SAAR), a notable acceleration over the 1.9% increase seen in the first quarter. Private consumption growth was spearheaded by durable goods consumption and largely reflected subdued inflation and steady gains in employment, which boosted households’ disposable income.
Non-residential investment also saw an upward revision, to 6.9% from the 5.2% expansion that was first estimated. The second estimate was just marginally below the 7.2% rise seen in the first quarter and demonstrates firms’ confidence in domestic demand as well as widespread optimism among businesses. Conversely, the drop in residential investment was smaller than previously expected, but at 6.5% still marks an important downswing from the 11.1% increase recorded in Q1. The second estimate’s only significant negative was government consumption growth, which was revised from a 0.7% increase to a 0.3% drop in Q2 (Q1: -0.6% SAAR).
Regarding the external side of the economy, exports growth was revised down to a seasonally-adjusted annualized rate expansion of 3.7% from the 4.1% increase previously estimated (Q1: +7.3% SAAR). Similarly, imports growth saw a downgrade from the 2.1% increase in the first estimate to a 1.6% expansion in the second estimate (Q1: +4.3% SAAR). Slower rates of expansion in both exports and imports left the net contribution of the external sector to overall growth unchanged at a 0.2 percentage-point contribution in Q2.
The second estimate suggests a firmer pace of underlying growth, with all segments of the economy but government performing better than previously estimated. In addition, leading data for July and August suggests that Q2’s best performers, namely private consumption and non-residential fixed investment, will continue to grow at healthy rates in Q3. However, Hurricane Harvey, which has devastated areas of the Gulf Coast in recent days, is likely to weigh on Q3 growth as refineries suffer outages and ports are shut down.
Author: David Ampudia, Economist