The Economy

U.S. GDP Gain Revised Down to 2.0% for Q2

The government's second estimate of GDP showed a rebound in corporate profits as businesses benefited from strong consumer spending.
Matthew HellerAugust 29, 2019

The U.S. economy grew at a slightly slower rate in the second quarter than originally estimated but corporate profits, boosted by strong consumer spending, rebounded after two straight quarterly declines.

In its second reading of second-quarter growth, the Commerce Department reported Thursday that gross domestic product increased at a 2.0% annualized rate, revised down from the 2.1% pace estimated last month.

The economy grew at a 3.1% rate in the January-March quarter and expanded 2.6% in the first half of the year.

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But the government also said a key measure of corporate profits — after taxes, without inventory valuation and capital consumption adjustments — rose 4.8% from the prior quarter after declining 1.5% in the two previous quarters. It was the biggest quarterly gain since the first quarter of 2018.

Corporate profits are not included in the first estimates of GDP.

“The increase in corporate profits came as American consumers spent at the strongest pace since late 2014, shrugging off the uncertainty surrounding trade policy that rattled financial markets in the second quarter,” The Wall Street Journal said.

For the second quarter, consumer spending rose 4.7% — up from the original estimate of 4.4% — marking the biggest gain since the end of 2014, as Americans spent more on new cars and trucks, clothes and eating out, among other things.

Business fixed investment, however, declined by a revised 1.1% versus the earlier 0.8% estimate as companies apparently shored up profits by reducing investment amid uncertainty over trade.

The slowdown in growth since the first quarter reflects the drag from inventory drawdown and trade and the pullback in business spending. The revised estimate for the second quarter showed a 0.91 percentage point drag from inventory investment and a 0.72 percentage point decline from exports.

Economists are expecting third-quarter GDP growth of around 2.2% to 2.3%.

“If the consumer cracks now, with business outlays already soft, the economic expansion could be in trouble,” said Amherst Pierpont chief economist Stephen Stanley. “However, so far, there are no signs that we are about to see a downward turn in employment or consumer spending.”

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