GDP growth revised to a lackluster 1.6%

Real GDP was downwardly revised to 1.6% in the second quarter from an originally-reported 2.4% gain. Real domestic final sales, however, were upwardly revised to 4.3% from 4.1%.

Lower-than-initially reported inventories and structures investment along with stronger imports were only partially offset by higher consumer spending and stronger business equipment investment.

Economic profits rose 4.6% (nonannualized) in the second quarter and have surged 39.2% over the last year. The implied income estimate of real GDP rose 2.3% in the second quarter, putting this measure up 3.2% year-over-year (versus a 3.0% gain in expenditure-based real GDP on the same basis).

BOTTOM LINE

Although real GDP rose only 1.6% in the second quarter, expenditure-based estimates of growth were held back by a massive 32.4% jump in imports which subtracted 4½% points from the increase in real GDP. Higher imports subtract from growth due to GDP accounting but are not a sign of economic weakness. Real domestic final sales (GDP less inventories and trade) rose 4.3% in the second quarter, the strongest gain since the first quarter of 2006. The downward revision to inventory investment is a modest positive for third-quarter growth estimates and strong gains in corporate profits should support business investment. Recent economic data have been disappointing but we believe that the trend of lackluster growth that has been seen over the last year will continue in the quarters ahead.

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