US GDP Growth Revised Higher For Second Quarter

In this Monday, August 17, 2015 photo, construction workers work at the site of a high-rise condominium as part of the downtown Doral complex developed by the Codina Partners in Doral, Fla.

The rebound in the second quarter after dismal 0.6% growth in the first three months of the year was driven largely by an increase in spending by consumers, who account for as much as 70% of USA economic activity.

It’s worth emphasizing that quarterly growth numbers can vary quite a bit, and while 3.9% GDP growth in the spring is encouraging, projections point to growth of about 2.5% in this quarter, and growth of about 2.3% for the year overall.

Year-over-year, real GDP increased at a 2.7 percent rate, which was down from the rate of increase for the first quarter, which came in at 2.9 percent. Americans spent more on services such as health care and transportation. Next month, the government will release its first estimate of economic growth for the third quarter. The quarter’s acceleration in growth reflected acceleration in personal consumption expenditures (PCE), as well as an increase in state and local government spending and net exports. The breakdown shows +2.42% from consumption, +0.85% from investment, +0.02% from inventories, and +0.46% from government spending. Gross fixed investment also improved to +5.2% vs. +4.1% while the contribution of inventories declined. Exports rose 5.1% while imports edged up 3%.

This continued weakness in the economy may contradict the message that Fed chair Janet Yellen and the Fed are trying to pitch to us. While the central bank would continue to monitor developments overseas, she said that, “we do not now anticipate that the effects of these recent developments” will be large enough to impact the Fed’s interest rate decisions.

All these developments contributed to a decision by the Federal Reserve last week to keep its key interest rate unchanged at a record low near zero, where it has been since late 2008.