Q2 GDP at 4.0% Soars Above Expectations

July 30, 2014

by Doug Short

The Advance Estimate for Q2 GDP, to one decimal, came in at 4.0 percent, and the annual revision for Q1 GDP lifted it from -2.9 percent to -2.1 percent. The Advance Estimate of the GDP deflator used to calculate real (inflation-adjusted) GDP rose to 1.9 percent from an upwardly revised 1.4 percent in Q1 (previously 1.3 percent). Investing.com had forecast 3.0 percent for today's GDP estimate and the deflator to rise from the Q1 1.3 percent to 1.8 percent.

The general consensus among economists was the vicinity of 3.0 percent (more on that topic here).

Here is an excerpt from the Bureau of Economic Analysis news release:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.0 percent in the second quarter of 2014, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent (revised).

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3 and "Comparisons of Revisions to GDP" on page 10). The "second" estimate for the second quarter, based on more complete data, will be released on August 28, 2014.

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. [Full Release]

Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).

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Here is a close-up of GDP alone with a line to illustrate the 3.3 average (arithmetic mean) for the quarterly series since the 1947. I've also plotted the 10-year moving average, currently at 1.6 percent, down from 1.7 percent last quarter.

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Here is the same chart with a linear regression that illustrates the gradual decline in GDP over this timeframe.

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A particularly telling representation of slowing growth in the US economy is the year-over-year rate of change.

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And for a bit of political trivia, here is a look at GDP by party in control of the White House and Congress.

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In summary, the Q2 GDP Advance Estimate of 4.0 percent was well above forecasts and supports the mainstream view that the Q1 GDP contraction was a weather-related fluke.

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