The third and final estimate for real gross domestic product (GDP) in the second quarter showed the U.S. economy was not as lethargic as first expected as consumer spending picked up steam.
In the new report released (Sept. 29) by the Bureau of Economic Analysis, which is based on more complete source data than were available for the first and second “advance” estimate in July and August, is three-tenths of a percentage point above last month’s approximation of real GDP and now stands at 1.4%.
Still, the newest GDP report shows U.S. economic growth has much room for improvement, highlighted by the Federal Open Market Committee’s decision last week to keep interest rates for federal funds at 0.25% to 0.5%. The final GDP estimate by the Department of Commerce’s BEA research group also came in well below of the Atlanta Fed’s original GDPNow forecast of 2.3% economic growth for the second quarter.
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 – grew at a weak 0.8% in the first quarter of 2016. The U.S. economy great 2.6% in the second quarter of 2015, BEA data shows.
In the hours after the BEA release, the White House’s chief economist sent out a note applauding the revised GDP figures and touting the improvement in consumer spending.
“The second quarter of 2016 ranked as the second-strongest quarter for consumer spending growth since 2006,” wrote Jason Furman, chairman of President Obama’s Council of Economic Advisers. “Consumer spending contributed 2.9 percentage points to GDP growth in the second quarter, reflecting improved economic conditions for many households.”
Overall, real gross domestic income (GDI) decreased 0.2% in the second quarter, in contrast to an increase of 0.8% in the first. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 0.6% in the second quarter, compared with an increase of 0.8% in the first.
The acceleration in real GDP in the second quarter primarily reflected growth in personal consumer expenditures and upturns in nonresidential fixed investment and exports. These were partly offset by a larger decrease in private inventory investment, downturns in state and local government spending and in residential fixed investment, and an upturn in imports.
Current-dollar GDP increased 3.7%, or $168.5 billion, in the second quarter to a level of $18.4 trillion. In the first quarter, current dollar GDP increased 1.3%, or $58.8 billion. The price index for gross domestic purchases increased 2.1% in the second quarter, compared with an increase of 0.2% in the first. Meanwhile, profits from production (corporate profits with inventory valuation adjustment and capital consumption adjustment) decreased $12.5 billion in the second quarter, in contrast to an increase of $66 billion in the first.
Profits of domestic financial corporations increased $5.6 billion in the second quarter, compared with an increase of $8.1 billion in the first. Profits of domestic nonfinancial corporations decreased $56.1 billion, in contrast to an increase of $84.8 billion. The rest-of-the-world component of profits increased to $38 billion, in contrast to a decrease of $26.9 billion. This measure is calculated as the difference between receipts from the rest of the world and payments to the rest of the world. In the second quarter, receipts increased $37.5 billion, and payments decreased $0.5 billion.
According to the BEA, the first estimate for GDP growth in the third quarter will be released on Sept. 29. The Atlanta Fed’s GDPNow is now forecasting a stable expansion of 2.8% for the third quarter, down from rosier expectations of 3.2% growth a month ago. That more optimistic view may have been affected by a World Trade Organization forecast on Tuesday that the global economy is contracting. According to the latest WTO estimates, global trade will grow slower than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%.
The forecast for 2017 has also been revised, with trade now expected to grow between 1.8% and 3.1%, down from the previous 3.6% estimate.
“With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009,” WTO officials said.
Closer to home, BEA data released last week for all U.S. metropolitan areas shows that Arkansas communities have experienced the same bumpy economic ride as the rest of the nation.
New data on Arkansas metro areas shows that in 2015, Northwest Arkansas was the only Arkansas community with business growth above the national GDP average of 2.5%. According to analysis by the University of Arkansas at Little Rock’s Institute for Economic Advance, the Fayetteville-Springdale-Rogers area had GDP growth of 4.4%.
At 2.4%, Jonesboro’s growth rate was near the national average, while Little Rock and Texarkana grew at weak GDP rate of 1% and 0.7%, respectively. At the other end of the scale, GDP was reported to have contracted in three metro areas, with losses in Hot Springs and Pine Bluff reported at -3%. Fort Smith also lost ground at -1% GDP growth.
UALR economist Michael Pakko wrote in his “Arkansas Economist’ blog that data for a single year do not always reveal the underlying growth trend.
“For example, the contraction in Hot Springs interrupted a series of years with relatively robust growth. Even after declining 3% in 2015, GDP in Hot Springs was up 12.7% from its pre-recession level in 2007,” Pakko said. “Over the same period, Fayetteville was the fastest-growing metro, with cumulative growth of 28.5%. At the other end of the scale, GDP in Pine Bluff was down nearly 14% from its 2007 level.”
Another caveat to the latest data is that BEA figures for 2015 are advance estimates, “which are subject to considerable revisions,” he said.