U.S. GDP inches forward to 1.2% growth in second quarter, still well below forecast

The U.S. economy crept forward in the second quarter of 2016 as consumer spending saw a slight uptick due to more Americans in the labor pool and growth in personal income, according to the “advance” Gross Domestic Product (GDP) estimate released Friday (July 29) by the U.S. Bureau of Economic Analysis.

Still, the advance second quarter GDP estimate, which is the first of three estimates by the Department of Commerce’s BEA research group, came in well below the latest GDPNow model weekly forecast of 1.8% by the Atlanta Federal Reserve on Thursday.

Real gross domestic product – the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes – increased at a lukewarm rate of 1.2% in the second quarter of 2016, slightly better than the revised tepid growth of only 0.8% in the first three months of 2016.

Over the past week, the Atlanta Fed downgraded its GDP forecast from a solid 2.3% after the U.S. Census Bureau’s inaugural release of its advance economic indicators report, which covers retail and wholesale inventories and foreign trade in goods.

The BEA’s “advance” estimates, based on source data that are incomplete or subject to further revisions, are released near the end of the first month following the end of the quarter. As more detailed and more comprehensive data becomes available, “second” and “third” estimates are released near the end of the second and third months, respectively.

Gad Levanon, managing director of the macroeconomic and labor market research at the Conference Board, recently said a surprising feature of the U.S. economy in recent years has been rapid employment growth despite only modest economic expansion.

“While GDP in the current economic expansion has been growing much more slowly than in previous expansions, employment growth has been quite robust,” Levanon said in a recent blog post. “Why have so few manufacturing industries experienced a decline in employment in recent years? It has certainly not been due to strong demand …, the answer is probably a combination of a slowdown in productivity growth, lower offshoring activity and slower import penetration from foreign competitors.”

According to the BEA, the acceleration in real GDP growth in the second quarter reflected an acceleration in personal consumption expenditures, an upturn in exports, and smaller decreases in nonresidential fixed investment and in federal government spending. These were partly offset by a larger dip in private inventory investment, and declines in residential fixed investment and in state and local government spending.

In addition to the second quarter analysis on U.S. economic growth, the BEA made a number of revisions to the first quarter GDP report and other economic data over the past several year. For example, real GDP in the first quarter was downgraded to only 0.8% from previous estimates of 1.1%. The three percentage point downward primarily reflected revisions to residential fixed and private inventory investment and exports, BEA officials said.

The revised BEA data also shows that real GDP increased at an average annual rate of 2.2% from 2012 to 2015. Previous estimates from the past three years shows that real GDP growth had accelerated at an annual rate of 2.1%.

Following are highlights of the second quarter advance GDP report.
• Current-dollar GDP increased 3.5%, or $155.9 billion, in the second quarter to a level of $18.4 trillion billion. In the first quarter, current dollar GDP increased 1.3%, or $58.9 billion.

• The price index for gross domestic purchases increased 2% in the second quarter, compared with an increase of 0.2% in the previous quarter. The PCE price index increased 1.9 %, compared with an increase of 0.3% in the first quarter.

• Current-dollar personal income increased $111.4 billion in the second quarter, compared with an increase of $52.8 billion in the first quarter. The acceleration in personal income primarily reflected upturns in wages and salaries, personal dividend income, and farm proprietors’ income that were offset by slowdowns in personal current transfer receipts.

• Disposable personal income jumped 3.1% to $106.3 billion in the second quarter, compared with an increase of $83.4 billion, or 2.5%, in the first three months of the year. Second quarter real disposable personal income increased 1.2% compared with an improvement of 2.2% in the first quarter.

• Personal saving was $763.1 billion in the second quarter, compared with $847.8 billion in the first. The personal saving rate – personal saving as a percentage of disposable personal income.

According to the BEA, the “second” estimate for GDP growth in the second quarter will be released on August 26. That report will include additional data on U.S. corporate profits.