Second Quarter GDP Revised Lower; Corporate Profits Fall

Growth of the USA economy in the second quarter was revised down as expected while consumer spending registered an unexpected increase, according to official data released on Friday.

Business investment rose 0.5 percent from the first quarter, when it declined 0.6 percent. The biggest surprise from the ONS data is that business investment saw a considerable turnaround, as investment grew by 0.5% in the second quarter, a stark comparison to the first three months of the year, when it had fallen by 0.6% from the previous quarter last year, although in contrast to the same period last year, investment was down b 0.8%.

Personal consumer expenditure increased at an annual rate of 4.4% for the quarter from the original estimate of 4.2% with strong growth in durable goods purchases of 9.9% and solid growth of 3.1% in services. It grew 1.0 percent in the first half of 2016. “But with a number of recent surveys from the CBI and others showing bouncebacks from post-vote lows, strong official retail sales numbers for July, and the support offered by the package of measure announced by the Bank of England, predictions that the economy will fall into recession look unduly pessimistic”.

The government also reported that corporate profits after tax, without inventory valuation and capital consumption adjustments, increased about five percent from the prior quarter to a seasonally adjusted annual level of $1.627 trillion in the second quarter. It increased at a 0.8 percent pace in the first quarter.

Some Fed officials preferred to wait for more evidence that U.S. inflation would rise to the central bank’s objective of 2 percent on a sustained basis, while other officials anticipated that economic conditions would soon warrant another rate increase, according to the minutes of the Fed’s July 26-27 meeting released this month.

Economists had pencilled in second quarter GDP growth to come in unchanged at 0.6 per cent. State and local outlays decreased at a 2.2 percent annualized rate and subtracted 0.25 percentage point from growth, the most since the last three months of 2012. Adjusted pretax earnings dropped 1.2% to mark the fifth decline in the past six quarters, the Commerce Department reported.

Meanwhile, imports were revised down to a 0.3% rate instead of 0.4 %.

The U.K. economy expanded by double the rate of the eurozone in the second quarter, Britain’s national statistics office confirmed in its second take on the data.

The change in GDP reflected downward revisions for government spending, private inventories and net exports, partially offset by upward revisions for nonresidential fixed investment and PCE. However, the current weakness of the pound could help to close the gap to a certain extent although this was also likely to put the brakes on consumer spending growth.