The final revision to Second Quarter G.D.P. was released today, and it shows that the economy bounced back for the slowdown in the First Quarter that actually saw economic growth contract far stronger than originally reported:
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 4.6 percent in the second quarter of 2014, according to the “third” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent.
The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 4.2 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in exports were larger than previously estimated (for more information, see “Revisions” on page 3).
The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
Real GDP increased 4.6 percent in the second quarter, after decreasing 2.1 percent in the first. This upturn in the percent change in real GDP primarily reflected upturns in exports and in private inventory investment, accelerations in nonresidential fixed investment and in PCE, and upturns in state and local government spending and in residential fixed investment that were partly offset by an acceleration in imports.
As The New York Times reports, this strong performance by the economy has caused most analysts to revise their forecasts for the remainder of the year upward:
WASHINGTON — The U.S. economy’s bounce-back last quarter from a dismal winter was even faster than previously thought, a sign that growth will likely remain solid for rest of the year.
The economy as measured by gross domestic product grew at a 4.6 percent annual rate in the April-June quarter, the Commerce Department said Friday. It was the fastest pace in more than two years and higher than the government’s previous estimate of 4.2 percent.
The upward revision reflected stronger-than-expected business investment and exports last quarter.
The healthy second-quarter growth marked a sharp rebound from the January-March quarter, when the economy shrank at a 2.1 percent rate in the midst of a brutal winter that idled factories and kept consumers at home.
As the third quarter nears an end, economists envision a strengthening economy through the end of 2014 and into 2015. Many think the economy is growing in the current July-September quarter at a rate of around 3 percent.
Sal Guatieri, senior economist at BMO Capital Markets, is slightly more optimistic than most. He said a brighter outlook for business investment spending and other good economic reports had led him to revise his GDP forecast to 3.2 percent growth for the July-September period, up from 2.8 percent earlier.
“The American economy is firing on virtually all cylinders and cruising at a decidedly stronger rate than in recent years,” Guatieri said.
After the dismal performance of the economy in the First Quarter, this is certainly welcome news. More importantly, it’s a sign that the economy is likely in no danger of slipping into recession any time soon and that the recovery that began, according to traditional measurements, in early 2009 will continue to churn along, perhaps at a faster pace than it has for most of the past five years. The most important news out of today’s numbers is that the growth that occurred happened in areas that are likely to continue to grow in the the future. We’ve seen strong G.D.P. before, but they’ve ended up being temporary bounces based largely on something like increased Defense Department acquisitions at the end of a Fiscal Year or a buildup in business inventories, neither of which are generally seen by economists as the kind of sustainable growth that the economy needs for a number like this to be something other than a short upward bounce. In addition to business investment and exports, for example, there was also strong upward growth in final sales. There were also increases in consumer spending and personal income that are likely good signs going forward. Finally, a survey released in the wake of the G.D.P. numbers shows consumer sentiment at a 14 month high, which is good news for retailers heading into the Christmas shopping season.
We’ll get the first estimate of growth in the 3rd quarter at the end of October, but based on the employment figures from the past several months, which will be supplemented by the September Jobs Report next Friday, it looks like we’re in good shape.
The interesting question is whether numbers like this will have any impact on the midterm elections. As is typically the case, the economy is likely to be a top concern of voters when the go to the polls, so good news about the economy would seem to be good news for incumbents on both sides of the aisle. As a general rule, though, it’s never really been the case that individual economic statistics have much of an impact on election returns. Instead, voters tend to vote based on their perceptions of the economy and their own economic experience, and in that respect there would seem to be bad news for Democrats wanting to hold on to the Senate. Recent polling shows that large numbers of voters still don’t believe that the economy has fully recovered from the Great Recession, that there is widespread anxiety over the state of the economy, and that the economy many never fully recover from the 2007 economic downturn. Other polling has showed that a large segment of the voting public still believes the economy is in recession, which is obviously not true if you look at the way a recession is defined by economists. Finally, President Obama’s job approval on the economy remains quite negative. Added together, that portends a voting public that will not be inclined toward Democrats in November regardless of what the economic statistics say.
