The Bureau of Economic Analysis released its first estimate for second quarter GDP on Thursday, July 30. The first estimate for the second quarter showed a strong improvement from the first quarter at 2.3% versus an upwardly revised 0.6%. The Bureau of Economic Analysis’ key measure on economic growth in the U.S. is reported as a seasonally adjusted annual rate with the second estimate set for release on August 27 and the final estimate to be released on September 25. U.S. market indexes were up for the July 31 week following the report’s release on Thursday. The S&P 500 Index gained 1.15%. The Dow Jones Industrial Average finished the week up 0.69% led by Pfizer (PFE, Financial) up 5.25%.
After the somber first quarter GDP results which at last estimate reported a contraction of 0.2%, the second quarter results appear to signal strong improvement ahead. However, at a 2.3% SAAR, GDP growth was still below economists’ average prediction of 2.9% and just above economists’ lower range estimate of 1.9% to 3.5%.
Consumer spending for the quarter was a highlight at a 2.9% SAAR versus 1.8% in the first quarter. Overall, spending was focused more on goods than services. Consumer goods reported a 4.8% SAAR of growth fueled by durable goods with a SAAR of 7.3%. Services reported a SAAR of 2.1% for the second quarter.
Gross private domestic investment was slightly disappointing for the quarter at a SAAR of 0.3%. However, residential investment led the category overall at a SAAR of 6.6% indicating further continued improvement in the housing market.
The stronger dollar had less of an effect on exports in the second quarter with exports reporting a 5.3% SAAR versus imports at 3.5%. The rate of growth for exports in the second quarter significantly improved from a -6.0% SAAR in the first quarter. The uptrend in goods also showed in exports with a SAAR of 6.8% versus -11.7% in the first quarter.
Government investment was slightly higher in the second quarter led primarily by production at the state and local levels. Government expenditures had a growth rate of 0.8% in the second quarter versus -0.1% in the first quarter. At the state and local level expenditure growth was 2.0% for the second quarter.
While at the lower range of economists’ expectations, the second quarter GDP report appears to be strong enough to precipitate an increase in the federal funds rate by the Federal Reserve this year and potentially as soon as September. Further data reports significant for the Federal Reserve’s decision are scheduled to be released this week. On Monday the Bureau of Economic Analysis reports on the PCE Price Index which is the Federal Reserve’s main gauge for inflation. On Friday the Bureau of Labor Statistics is set to release its Employment Situation report for July. Continued positive labor market growth would likely lead to a September rate increase as labor market improvements have been the main catalyst driving the economy in recent months.
