BEA's Second Estimate: U.S. Q2 GDP 1.5%, Underlying Demand and Inflation Stronger

U.S. economic growth in the second quarter was left unchanged at a 1.5% annual rate in the government’s second estimate released Wednesday, but the revised data pointed to a sturdier picture underneath: stronger private domestic demand, firmer inflation and a sharp jump in corporate profits. The second-quarter pace matched the U.S. Bureau of Economic Analysis’ advance estimate released July 30, but slowed from 2.1% growth in the first quarter.

The BEA said the increase in gross domestic product, the broadest measure of the economy’s output, reflected gains in consumer spending, exports and investment, partly offset by a decrease in government spending. Imports also increased, and because imports are counted as spending on foreign-produced goods and services, they subtract from GDP.

The revisions show why the headline figure did not tell the full story. BEA said an upward revision to consumer spending was partly offset by an upward revision to imports, based on more complete source data. The updated consumer spending figures were driven especially by services, led by health care, while the import change reflected revised trade data. A closely watched measure of underlying demand — real final sales to private domestic purchasers, which tracks spending by households and businesses and excludes trade, inventories and government — rose at a 4.2% annual rate, revised up from 3.9% in the advance estimate. That gap between 1.5% headline GDP growth and 4.2% private domestic demand suggests the private sector was stronger than the top-line number alone indicates.

The inflation details also moved higher. The price index for gross domestic purchases increased 5.8% in the second estimate, up 0.1 percentage point from the advance reading. The personal consumption expenditures price index, or PCE — the inflation gauge most closely watched by the Federal Reserve — increased 5.3%, revised up 0.2 point. Core PCE, which excludes food and energy, increased 3.6%, also 0.2 point higher than first reported. Current-dollar GDP, which measures output without adjusting for inflation, rose 8.0%, up from 7.9% in the advance estimate.

Corporate profits showed one of the biggest changes in the report. “Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $400.9 billion in the second quarter, compared with an increase of $74.4 billion in the first quarter,” the BEA said. That marked a much larger profit gain than in the first three months of the year.

The GDP report released Wednesday is the second of the government’s three regular estimates for the quarter, and revisions are common as more complete data becomes available. The BEA’s third estimate for second-quarter GDP is scheduled for Sept. 30.