The U.S. economy grew at a solid rate of 3% in the second quarter of this year, the strongest advance in real gross domestic product growth since the first quarter of 2015, according to the “second” estimate from the U.S. Commerce Department’s Bureau of Economic Analysis (BEA).
The new GDP is better than the “advance” estimate of 2.6% last month, which were based on incomplete source data. BEA releases “second” and “third” estimates are near the end of the second and third months, respectively.
A year ago, 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 modest rate of 2.1% in the second quarter of 2016. The second quarter revisions bring the U.S. economic growth in the first half of 2017 an uncertain 2.1%, equal to the post-expansion from the Great Recession that ended in 2009. A Wall Street Journal survey of more than 60 U.S. economists had forecasted robust second quarter growth of 2.6% after a tepid GDP advancement of only 1.2% in the first quarter.
In an important bellwether period ahead of the Labor Day weekend, the BEA second estimate was released just ahead of ADP monthly U.S. employment report on Wednesday (Aug. 30) and the U.S. Bureau of Labor Statistics’ (BLS) August unemployment report on Friday. The ADP report shows that private sector employment increased by 178,000 jobs from June to July, prompting some worries that the tightening labor market would soon slow.
LABOR, HURRICANE CONCERNS
“Job gains continued to be strong in the month of July,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “However, as the labor market tightens employers may find it more difficult to recruit qualified workers.”
Mark Zandi, chief economist of Moody’s Analytics, added: “The American job machine continues to operate in high gear. Job gains are broad-based across industries and company sizes, with only manufacturers reducing their payrolls. At this pace of job growth, unemployment will continue to quickly decline.”
Last month, the U.S. unemployment rate fell to a 16-year low of 4.3% as nearly 210,000 new jobs were added to the nation’s labor pool.
However, many economists and analysts are already predicting that mounting costs associated with Hurricane Harvey could drag the U.S. economy down in the second quarter of 2017 and beyond. A study this week by Irvine, Calif.-based CoreLogic predicted that 232,721 homes along the Texas coast with a reconstruction cost value of nearly $39.6 billion are at potential risk of hurricane-driven storm surge damage. That same analysis noted that 52% of the resident and commercial properties in the Houston area are a “high” or “moderate” risk of flooding, but may be eligible federal insurance.
IMPROVED CONSUMER SPENDING, INCOMES
The revised BEA report shows that real GDP growth in the second quarter reflected strong consumer and government spending, an increase in U.S. exports, and boost in corporate investment and inventory. The positive momentum pushed current-dollar GDP growth up 4% to a level of nearly $19.3 trillion in the second quarter. In the first quarter, current-dollar GDP growth rose 3.3%, or by $152.2 billion.
Real gross domestic income (GDI) rose 2.9% in the second quarter, compared with a revised 2.7% in the first three months of the year. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity, jumped 3% in the second quarter, compared with an increase of 2% in the first quarter.
The U.S. price index for gross domestic purchases increased 0.8% in the second quarter, compared with an increase of 2.6% in the first quarter. The PCE price index increased 0.3%, compared with an increase of 2.2%. Excluding food and energy prices, the PCE price index gained 0.9%, compared with an increase of 1.8% in the previous three-month period.
Corporate profits increased $26.8 billion in the second quarter, compared to a decline of $46.2 billion in the first quarter. Profits of domestic financial corporations decreased $29.4 billion in the second quarter, compared with a decrease of $40.7 billion in the first quarter.
However, quarterly earnings for domestic nonfinancial corporations spiked by $64.8 billion, compared with an increase of $3.8 billion in the first three months of 2017. So-called “rest-of-the-world” corporate profits, calculated as the difference between receipts and payments from the rest of the world, decreased by $8.6 billion versus $9.3 billion in the previous quarter.
The Atlanta Fed’s GDPNow’s model forecast for real GDP growth in the third quarter of 2017 now stands at 3.4%, down from 3.8% on Aug. 16. The forecast of third-quarter real GDP growth fell 0.3 percentage points to 3.5% after the Federal Reserve Board’s industrial production report on Aug. 17 and the forecast of third-quarter real residential investment growth fell from 3.4% to -0.4% following negative housing market data releases last week.
The BEA will release its third and “final” GDP estimate for the second quarter on Sept. 28. The Wall Street Journal survey of U.S. economists projects third and fourth GDP growth to decline to 2.7% and 2.5%, respectively.