The U.S. Department of Commerce, Bureau of Economic Analysis (BEA) reported that the real gross domestic product (GDP) in the second quarter was revised up as consumers increased spending and businesses invested more than expected.
The agency’s third estimate for the second quarter showed the country’s GDP expanded 3.9% in the second quarter, up 0.2% from the previous estimate of 3.7%.
The growth was due to positive contributions from personal consumption expenditures, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment.
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Personal consumption contributed 0.3% to GDP
During the second quarter, the personal consumption expenditures grew at a faster pace, which contributed 0.3% to the total revision of the GDP. Investments in infrastructure increased 6.2% at an annual rate. Overall, the US GDP climbed 2.7% over the past four quarters.
Fixed investment contributed 0.2% to the upward revision, which reflects growth in business fixed investment and residential investment.
The Private Domestic Financial Purchases (PDFP) is the largest and most stable component of output. It is the combination of personal consumption and fixed investment. The PDFP grew 0.6% from 3.3% to 3.9% in the second quarter.
Big question about the US economy remains
Stifel chief economist Lindsey Piegza commented that the U.S. economy expanded at a faster pace than the previous estimate in the second quarter. However, he emphasized that the upward revision does not change the underlying theme for the first half of the year—a modest 2.2% growth established at the end of the Great Recession.
Piegza emphasized that the big question remained. Will the US economy continue to see a +3% or 4% GDP in the third quarter or will it start to lose momentum in the second half of the year?
She noted a recent statement from Federal Reserve Chairperson Janet Yellen that policymakers are committed to the possibility of raising interest rates this year if the economy continues to improve markedly. Yellen also expressed confidence that the inflation will start to increase and meet their target 2% in the medium-term.
On the other hand, Piegza noted that the Atlanta Fed’s GDPNow model suggested that the third quarter growth will be at around 1.5%, a big disappointment. She said, “The lackluster reality of the data will likely be enough to snuff out any confidence in further underlying momentum in growth and momentum.”
Piegza added that that the expectations for a rate increase this year is still based on model projections of the economic growth and recovery as well as the individual expectations of policymakers.