Fleet Management

Economic Watch: GDP Growth Revised Upward, Auto Sales Shrink

August 28, 2014

By Evan Lockridge

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UPDATED -- The U.S. gross domestic product increased at an annual rate of 4.2% in the second quarter of the year, according to a second estimate released Thursday by the U.S. Commerce Department -- its best pace since the third quarter of last year.

This measure of the total output of goods and services compares to an estimate a month ago of a 4% annual increase for the second quarter. It's contrary to what was expected by economists surveyed by The Wall Street Journal, who had expected growth for the second quarter to be marked down to a 3.8% growth rate.

In the first quarter, GDP fell 2.1%, largely attributed to severe weather throughout much of the country.

This latest figure is based on more complete data than was available for the estimate issued last month, according to the department. It said the general picture of economic growth remains the same, while the increase in nonresidential fixed investment was larger than previously estimated and the increase in private inventory investment was smaller than previously thought.

Second quarter GDP “primarily reflected positive contributions from personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment,” the department said in a statement.

“While hawks are quick to again point to the second-quarter recovery as reason enough for the Federal Reserve to rush to raise [interest] rates, those with a longer memory will continue to point to the slowdown at the start of the year and the 1% average pace of growth in the first half of the year to reduce the immediacy for the Fed to alter monetary policy,” said Sterne Agee Chief Economist Lindsey Piegza.

“Going forward, an even stronger second quarter GDP report certainly fuels optimism, however, given the declining trend in consumption throughout the second quarter, a trend that has apparently carried over into the third quarter with July retail sales falling flat, we remain caustically optimistic for growth in the second half,” she said.

Auto sales

A separate report shows new car, light-truck and SUV sales are expected to drop 0.7% in August compared to the same time a year ago, hitting a total of 1.49 million units, according to publishers of the vehicle price guide Kelley Blue Book.

Although sales are down from a raw volume perspective, they remain up slightly after adjusting for the difference in selling days in August 2014 versus August 2013.

In August, new light-vehicle sales, despite a forecast showing they will be down in August from a year earlier, are projected to show 4% percent from the month before.

The seasonally adjusted annual rate for August 2014 is estimated to be 16.5 million, up from 15.9 million in August 2013 and higher than the 16.4 million level in June.

"Although growth has slowed, sales remain steady and on pace to end the year strong," said Alec Gutierrez, senior analyst for Kelley Blue Book. "Growth is expected to continue to soften, so we wouldn't be surprised to see automakers increase their incentive spending.

He said spending was restrained for the first part of the year, and has crawled upward in recent months. Sales are also expected to be boosted by the Labor Day weekend, which is traditionally one of the strongest weekends of the year for vehicle sales.

Updated adds Lindsey Piegza comments.

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