US 2Q REAL GDP REVISED TO +1.6%, -0.2 PT, BUT 3Q REBOUNDING
By Joseph Plocek
WASHINGTON (MktNews) - U.S. real GDP was revised to +1.6% for the second quarter, the Commerce Department said Thursday.
The revision was to a pace a bit slower than expected, and 0.2 point lower than the prior estimate. The median estimate in a Market News International poll of economists was +1.8% for 2Q GDP. The 1.6% rate was the slowest pace for GDP since the second quarter of 1995, but partial data available for 3Q show a rebound is already in place.
Moreover, 2Q real final sales, a measure of activity excluding inventory investment, were up a healthy 3.1% -- showing underlying strength in the economy. Real final sales grew 4.6% in 1Q and 6.6% in 4Q.1998.
The sources of the latest revision included lower inventory investment and lower imports than previously assumed. Also, services consumption was revised higher, probably as utilities bills increased with rising oil prices. Newly available break-out data show the cost of electricity and gas posted a $4.2 billion increase in 2Q after rising $4.0 billion in 1Q. This compares with a $0.2 billion gain during all of 1998.
The 0.2 point revision from the prior GDP estimate is smaller than the 0.3 point average revision without regard to sign posted over the last 20 years. This indicates the Commerce Department saw offsetting data changes that minimized error.
Elsewhere, 2Q corporate profits after tax were revised a bit higher to +1.8% (was +1.7%). Losses at domestic financial corporations were biggest, but widespread erosion across categories accounted for the weakening from the +6.2% posted in 1Q.
The GDP price deflator was +1.3% in 2Q, held down by falling computer prices. The GDP price index less computers was +2.3%. No financial market impact should result from these data.
Comprehensive revisions to the GDP data are expected to be reported October 28. Commerce Department officials noted definitional and classification improvements are expected in the next report. These include the recognition of software purchases as investment; the treatment of government retirement plans to make them similar to private pensions; a change in accounting for insurance company profits; and improvements in the measure of national savings.
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