The Urethane Blog

Q2 Growth Revised to 3%

US Second Quarter GDP Revised Sharply Higher To 3.0%, Best In Two Years

In a surprise for traders – and the Fed – moments ago the BEA reported that after its first revision of Q2 GDP (a quarter which ended two months ago), the initial estimate of 2.6% was revised to 3.0%, beating expectations of a 2.7% print, and the highest annualized growth rate since Q1 2015. The annualized Q2 GDP was more than double the first quarter number which as a reminder printed at 1.2%

While most components were revised higher in the latest release (with the notable exception of government which downshifted from 0.12% to -0.05%) the bigges contributor to the upward revision was Personal Spending, which surged 3.3% in Q2, after rising 1.9% in Q1, and contributing 2.28% of the bottom GDP line.

As a result, the upward revision to the second estimate of GDP growth mainly reflected revisions to consumer spending on goods and to business investment. The full breakdown is shown below.

Meanwhile, looking at the Fed’s preferred inflation indicator, the core PCE, it showed that for one more quarter inflation supposedly remained dormant,  as core PCE rose 0.9% in 2Q, in line with expectations, after rising by 1.8% in the prior quarter.

Today’s report also revealed that NIPA corporate profits increased 1.3% in Q2 after dropping 2.1% in the first quarter.

Profits of domestic nonfinancial corporations increased 5.4% after increasing 0.3%. This however was offset by a sharp drop in profits of domestic financial corporations decreased 6.2% after decreasing 7.9%. Somewhat surprisingly, profits from the rest of the world decreased 2.0% after decreasing 2.1%, despite the steep drop in the USD. In total, the BEA reports that corporate profits increased 7.0 percent from the second quarter of 2016.