2nd Quarter GDP Slows to 2.0%

Gross domestic product slowed to 2 percent in the second quarter, according to the second (revised) estimate issued by the Bureau of Economic Analysis yesterday.

In the first quarter, real GDP increased by 3.1 percent. The BEA’s first (advance) estimate had GDP slowing to 2.1 percent

BEA said the second estimate based on more complete source data than were available for the “advance” estimate issued last month. The revision primarily reflected downward revisions to state and local government spending, exports, private inventory investment, and residential investment that were partly offset by an upward revision to personal consumption expenditures. Imports which are a subtraction in the calculation of GDP, were unrevised.

The report said the increase in real GDP in the second quarter reflected positive contributions from PCE, federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, residential fixed investment and nonresidential fixed investment. Imports increased.

Deceleration in real GDP in the second quarter primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment, partly offset by accelerations in PCE and federal government spending.

The report also noted corporate profits increased by $105.8 billion in the second quarter, compared to a decrease of $78.7 billion in the first quarter. Profits of domestic financial corporations increased by $4.0 billion in the second quarter, compared to an increase of $22.2 billion in the first quarter. Profits of domestic nonfinancial corporations increased by $43.5 billion, compared to a decrease of $108.2 billion. Rest-of-the-world profits increased by $58.3 billion, compared to an increase of $7.3 billion. Receipts increased by $39.9 billion and payments decreased $18.5 billion.

Jay Bryson, acting chief economist with Wells Fargo Securities, Charlotte, N.C., said while profit growth remained “solid,” indicators suggest it could slow in coming quarters.

“The tight labor market should continue to add to firms’ labor costs, while the most recent escalation in the trade war will leave more firms–or perhaps more aspects of firms’ supply chains–exposed to tariffs,” Bryson said. “Elevated profit margins have given corporations scope to absorb higher costs, but margins have receded in recent quarters and levies on imports from China are set to rise 5% in October. Whereas previous bouts of the trade fight have been aimed at input items, the new round of tariffs–those that go into effect in September and December–will directly affect consumer products.”

Bryson added with the global economy slowing, and a more moderate pace of economic growth at home, “there is even less scope for a renewed increase in profit growth this year.”