Second quarter GDP revised up to 4.2%, consumer confidence hits 18-year high

The U.S. economy expanded at a faster clip than previously thought in the second quarter as consumer confidence touched an 18-year high and tax-cut fueled corporate profits boosted business spending and growth, according to the “second” GDP estimate released Wednesday (Aug. 29) by the Bureau of Economic Analysis.

Based on more complete economic data, real gross domestic product (GDP) was revised from 4.1% to 4.2% in the second quarter of 2018, matching Wall Street expectations. In late July, the BEA released its first or “advance” estimate that the nation’s economic engine accelerated to 4.1% in the second quarter, which was well above modest 2.2% GDP growth in the first quarter.

The strong reading for second quarter annual GDP, the value of goods and services produced by the nation’s economy less the value of the goods and services used up in production, is the highest economic expansion since the U.S. saw robust growth 5.2% in the third quarter of 2014, according to the Bureau of Economic Analysis (BEA) report.

BEA releases three versions of the quarterly estimate for GDP. “Advance” estimates are released near the end of the first month of each quarter and are based on source data that are incomplete or subject to further revision by the source agency. Second and third estimates are released near the end of the second and third months, respectively, and are based on more detailed and more comprehensive data as they become available.

The GDP comes one day after the Conference Board on Tuesday reported that the consumer confidence index increased to 133.4 in August, up from 127.9 in July. The “present situation” index, which measures consumers sentiment on where they are now, also improved from 166.1 to 172.2, while the forward-looking “expectations index” also rose from 102.4 to 107.6 between months.

“Consumer confidence increased to its highest level since October 2000, following a modest improvement in July,” said Lynn Franco, director of Economic Indicators for the business research group. “Consumers’ assessment of current business and labor market conditions improved further. Expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018. Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term.”

The Conference Board also released its annual “job situation” report Wednesday showing that more than half, or 51% of U.S. workers were satisfied with the status quo, the highest level since 2005. According to the annual report, improvement was especially strong in satisfaction with job security and wages, particularly for workers with household incomes below $75,000.

Still, the report said, employers have room for improvement — especially in a tightening labor market — as satisfaction with promotion policies ranked at the bottom of job satisfaction components. Still, those key reports, along the bullish stock market and recent renegotiated NAFTA agreement with Mexico, had groups aligned with the Trump administration cheering loudly about the administration’s economic agenda.

Earlier this month, a consensus of Federal Reserve economists forecasted that the U.S. economy will expand at an annual rate of 3% in 2018 after the advance reading for the second quarter was released. However, St. Louis Fed economist Kevin Kliesen, who researches economic trends for Arkansas and six other Midwest states across the nation’s Eighth District, noted that some broad-based economic indicators imply stronger growth.

“Economic conditions have been fueled by strong corporate profits, healthy financial market conditions, and accommodative monetary and fiscal policies. If these trends persist, buoyant economic and labor market conditions are likely over the second half of the year,” forecasted Kliesen.

Overall, despite small hike in GDP growth, the BEA noted that the nation’s “general picture of economic growth” remains the same with slight upward revisions to nonresidential fixed investment and private inventory investment that were partly offset by a downward revision to personal consumption expenditures.

Real gross domestic income (GDI) increased 1.8% in the second quarter, compared with an increase of 3.9% in the first quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 3% in the second quarter, compared with 3.1% in the first quarter.

Current‑dollar GDP jumped 7.6%, or $370.9 billion, in the second quarter to a level of $20.41 trillion. In the first quarter, current-dollar GDP rose by 4.3%, or $209.2 billion. Matching the rise in inflation, the price index for gross domestic purchases increased 2.3% in the second quarter, compared with a gain  of 2.5% in the previous quarter. The PCE price index, which excludes food and energy prices, increased 1.9%, compared to 2.5% in the earlier three-month period.

Profits from current production, which includes corporate profits with inventory valuation and capital consumption adjustments, rose a whopping 171% to $72.4 billion in the second quarter, compared with $26.7 billion in the first quarter. Profits of domestic financial corporations increased $16.8 billion in the second quarter, in contrast to a decline of $9.3 billion in the first quarter.

Profits of domestic nonfinancial corporations nearly doubled to $63.6 billion, compared to $32.3 billion in the previous quarter. Rest-of-the-world profits fell by $8 billion, in contrast to an increase of $3.7 billion. Second quarter receipts decreased by $6 billion and payments were up $2 billion.

The BEA will release its third and final GDP estimate for the second quarter, which will include a tally of corporate profits, on Aug. 29. The Atlanta Fed’s GDPNow model now forecasts third quarter GDP at robust 4.6%, up from 4.3% week earlier due to stronger business investments, new home sales and consumer spending.