Economic Watch: GDP Jumps in Second Quarter, First Quarter Revised Upward

The first reading on how well the American economy performed in the second quarter of the year shows it accelerated well ahead of the first quarter pace, according to the U.S. Commerce Department.

The gross domestic product, which measures the total output of goods and services, expanded at a 2.3% annual rate in the second quarter, its best showing since a 5% pace in the third quarter of last year.

Despite the improvement, it was a little below the 2.5% rate from a consensus forecast of economists polled by Bloomberg. Also, despite the first quarter’s upward revision from a decline of 0.2% annually to an increase of 0.6% per year, this still resulted in an average quarterly growth rate 1.5% of in the first half of the year, the weakest first half since 2011.

The latest figures reflects positive contributions from personal consumption expenditures, exports, state and local government spending, and residential fixed investment that were partly offset by negative contributions from federal government spending, private inventory investment, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Personal spending, which is estimated to account for about two-thirds of total economic activity, increased in the second quarter at an annual rate of 2.9%, better than the 1.8% pace in the first quarter of the year.

“The most concerning factor in the morning’s report was not necessarily the modest headline increase, but the lack of widespread support for growth in the second quarter,” said Lindsey Piegza, chief economist at Stifel Fixed Income. “Personal spending accounted for two percentage points of the 2.3% headline increase. Spending, however, needs to be supported by other areas of activity in the economy, particularly business development and job creation. At this point, however, business development and expansion remains markedly weak.”

She said without widespread improvement in business activity, there is very little to suggest stability, let alone momentum in the economy, as we look further into the second half of the year. 


“From the Federal Reserve’s point of view, this morning’s second quarter GDP report supports policy official’s assessment of a ‘modest’ economy with a disappointingly ‘slow’ rate of growth in businesses investment,” Piegza said. “Hardly a game changer to increase the Fed’s confidence in the economy’s growth profile, a subdued, modest pace of expansion following minimal growth in first quarter that continues to keep the Fed looking for at least some further improvement."

Federal Reserve Chairman Janet Yellen has indicated the central bank is moving closer to increasing short term interest rates later this year.

In the meantime, this latest GDP estimate will be followed by one in about a month along with one in late September as more data becomes available.