Nation’s Economy Advances By 2.3%, Things Returning to Normal, Local Economist Says

The nation’s economy gained momentum from April through June as real gross domestic product in the U.S. rose 2.3% in the second quarter of 2015, according to the “advance” estimate released by the Bureau of Economic Analysis on Thursday.

The new GDP report shows that second quarter growth is well ahead of the revised 0.6% real GDP growth in the first quarter, but slightly behind the final GDPNow model forecast of 2.4% projected by the Atlanta Fed on July 27.

Arkansas Tech economist Marc Fusaro said the GDP report was on the lower end of expectations, but is still a marked improvement over tepid first quarter growth.

“The numbers came in on the lower end of expectations, but are not out of line with what was expected,” said Fusaro.

He also said what surprised him in the second quarter GDP was the improvement in the price index for gross domestic purchases, which measures prices paid by U.S. residents. During the quarter, the index increased by 1.4%, recovering from a 1.6% decline in the first quarter.

According to the BLS, the “second” estimate for the second quarter, based on more complete data, will be released on Aug. 27, 2015. The BLS also emphasized that the second-quarter advance estimates are based on incomplete source data that is generally subject to two additional revisions as more data comes in.

If the next GDP revision continues to show that the nation’s economy is advancing ahead of the Federal Reserve’s next policy meeting in September, Fusaro said he expects the Fed to raise interest rates before the end of the year – just as the Arkansas Tech professor predicted in March.

“Everything in this report ‘screams’ that things are returning to normal,” he said.

Overall, the increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), exports, state and local government spending, and residential fixed investment that were partly offset by negative contributions from federal government spending, private inventory investment, and nonresidential fixed investment, the BLS said.

FIRST QUARTER REVISION, SECOND QUARTER HIGHLIGHTS
For the first quarter of 2015, real GDP is now estimated to have increased 0.6%, a marked improvement over the previously published estimates of a 0.2% decline in the output of goods and services produced by labor and property located in the U.S. The 0.8% adjustment primarily reflected upward revisions to nonresidential fixed investment, to private inventory investment, to residential fixed investment, and to federal government spending that were partly offset by a downward correction to PCE.

Highlights of the second quarter GDP report include:
• The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.4% in the second quarter, in contrast to a decrease of 1.6% in the first. Excluding food and energy prices, the price index for gross domestic purchases increased 1.1%, compared with an increase of 0.2%.

• Real personal consumption expenditures increased 2.9% in the second quarter, compared with an increase of 1.8% in the first. Durable goods increased 7.3%, compared with an increase of 2.0%. Nondurable goods increased 3.6%, compared with an increase of 0.7%. Services increased 2.1%, the same increase as in the first quarter.

• Real nonresidential fixed investment decreased 0.6% in the second quarter, in contrast to an increase of 1.6% in the first. Investment in nonresidential structures decreased 1.6%, compared with a decrease of 7.4%. Real residential fixed investment increased 6.6 %, compared with an increase of 10.1%.

• Investment in equipment decreased 4.1%, in contrast to an increase of 2.3%. Investment in intellectual property products increased 5.5%, compared with an increase of 7.4%.

• Real exports of goods and services increased 5.3% in the second quarter, in contrast to a decrease of 6.0% in the first. Real imports of goods and services increased 3.5%, compared with an increase of 7.1%.

• Real federal government consumption expenditures and gross investment decreased 1.1% in the second quarter, in contrast to an increase of 1.1% in the first. National defense decreased 1.5%, in contrast to an increase of 1.0%. Nondefense decreased 0.5%, in contrast to an increase of 1.2%. Real state and local government consumption expenditures and gross investment increased 2.0%, in contrast to a decrease of 0.8%.

• The change in real private inventories subtracted 0.08 percentage point from the second-quarter change in real GDP after adding 0.87 points to the first-quarter change. Private businesses increased inventories $110 billion in the second quarter, following increases of $112.8 billion in the first quarter and $78.2 billion in the fourth.

PERSONAL INCOME NUMBERS
Current-dollar personal income increased $145.0 billion in the second quarter, compared with an increase of $118.9 billion in the first. The acceleration in personal income primarily reflected upturns in personal interest income and in farm proprietors’ income that were partly offset by decelerations in government social benefits and in personal dividend income.

Personal current taxes increased $26.3 billion in the second quarter, compared with an increase of $60.2 billion in the first.

Disposable personal income increased $118.6 billion, or 3.7%, in the second quarter, compared with an increase of $58.7 billion, or 1.8% in the first. Real disposable personal income increased 1.5%, compared with an increase of 3.8%.

Personal outlays increased $161.9 billion in the second quarter, in contrast to a decrease of $10.3billion in the first. Personal saving – disposable personal income less personal outlays – was $640.1 billion in the second quarter, compared with $683.3 billion in the first.

The personal saving rate – personal saving as a percentage of disposable personal income – was 4.8% in the second quarter, compared with 5.2% in the first.