US 2Q REAL GDP UP ONLY 2.3%: CONSUMPTION, GOVT SLOW
08:33 EDT 07/29
By Joseph Plocek
WASHINGTON (MktNews) - The U.S. 2Q GDP report posted a surprisingly big slowing to +2.3%, from +4.3% in 1Q, and the GDP chain price index was unchanged from 1Q at +1.6%.
More modest GDP growth reflected a slowing in consumption, lower government spending, and some important assumptions for missing data. Economists had anticipated some of the events, but produced a median estimate for 2Q real growth of +3.4% in the Market News International poll.
Real consumption slowed to +4.0% in 2Q, versus +6.7% in 1Q. Goods buying slipped, with both durables and nondurables rising at slower paces than in 1Q. Services spending remained strong at +4.2%, little changed from +4.1% in 1Q, reflecting among other items higher expenditures for cooling during the early heat wave.
Government spending fell 1.2%, compared with a gain of 4.2% in 1Q. Federal nondefense spending fell 3.1%, down from +7.4% in 1Q. State and local spending also fell 0.1%, versus a gain of 7.7% in 1Q.
The key assumptions for missing data included a bigger increase in June exports than imports, and more non-auto inventory building in June. More construction and lower aircraft shipments are also assumed.
Inventories subtracted 0.86 point from 2Q growth, compared with a cut of 0.27 point in 1Q. Real final sales rose 3.2% versus +4.6% in 1Q, confirming that the core economy remains firm.
In one sign that businesses are setting up for future growth, private investment continues to grow. Gross investment was up 3.2% after a gain of 8.5% in 1Q. There was less spending on structures, but producers durable equipment was up 15.3%, compared with +9.5% in 1Q.
Some disquieting signs were also apparent in the report. The gross domestic price index gained 2.1% vs +1.2% in 1Q, due to higher oil and core prices. And the personal savings rate of -1.1% was the lowest on record since quarterly calculations began in 1946.
The Commerce Department indicated revisions to the National Income and Product Accounts are due for release October 28. The 11th revisions, usually prepared once every five years, will incorporate three changes. Definitional changes will more accurately portray the economy; new statistical methods will be incorporated; and table presentations will be updated.
Among the major changes will be the recognition of computer software as fixed investment and incorporation of new CPI components into the personal consumption deflator.
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