2Q GDP Rebounds to 2.6%

U.S. gross domestic product, which slumped to 1.2 percent in the first quarter, rebounded solidly in the second quarter, the Bureau of Economic Analysis reported Friday.

The BEA first (“advance”) estimate said real GDP increased at an annual rate of 2.6 percent in the second quarter. The increase reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports and federal government spending, partly offset by negative contributions from private residential fixed investment, private inventory investment and state and local government spending. Imports, a subtraction in the calculation of GDP, increased.

BEA said acceleration in real GDP growth reflected a smaller decrease in private inventory investment, an acceleration in PCE and an upturn in federal government spending, partly offset by a downturn in residential fixed investment and decelerations in exports and in nonresidential fixed investment.

The advance estimate is based on source data that are incomplete or subject to further revision by the source agency in August and September.

John Silvia, chief economist with Wells Fargo Securities Charlotte, N.C., said the second quarter bounceback came with help from solid consumer spending and business investment, but noted flagging inflationary pressures continue to challenge current Federal Reserve expectations.

“Residential investment corrected from the favorable weather-induced fast pace of the first quarter when activity was clearly pulled forward,” Silvia said. “Looking forward, the outlook for residential construction remains constructive as long as the labor market, including wage and salary growth continues to show improvement.”

Silvia noted inflation has registered soft performances over the prior four months and has grown just 1.6 percent year over year. “The figure reinforces the view that the price environment exhibits little upward momentum as we enter the second half of the year,” he said. “The Federal Open Market Committee will have to grapple with flagging price pressures as they assess the appropriate path for monetary policy. There is a lot of runway left before the December FOMC meeting where we believe the Fed may be in position to hike interest rates again, but a return to a quickening pace of inflation is critical to that call.”

Other key GDP data in the report:

–Current-dollar GDP increased 3.6 percent, or $169.0 billion, in the second quarter to f $19,226.7 billion. In the first quarter, current-dollar GDP increased 3.3 percent (revised), or $152.2 billion .

–The price index for gross domestic purchases increased 0.8 percent in the second quarter, compared to 2.6 percent in the first quarter. The PCE price index increased 0.3 percent, compared to an increase of 2.2 percent. Excluding food and energy prices, the PCE price index increased 0.9 percent, compared with an increase of 1.8 percent.

–Current-dollar personal income increased $118.9 billion in the second quarter, compared to an increase of $217.6 billion in the first quarter (revised). The deceleration in personal income primarily reflected decelerations in wages and salaries, in government social benefits, in nonfarm proprietors’ income and in rental income, and downturns in personal interest income and in farm proprietors’ income. These movements were offset by an upturn in personal dividend income.

–Disposable personal income increased $122.1 billion, or 3.5 percent, in the second quarter, compared to an increase of $176.3 billion, or 5.1 percent, in the first quarter (revised). Real disposable personal income increased 3.2 percent, compared to an increase of 2.8 percent.

–Personal saving rose to $546.8 billion in the second quarter, compared to $553.0 billion in the first quarter (revised). The personal saving rate–personal saving as a percentage of disposable personal income–was 3.8 percent in the second quarter, compared to 3.9 percent in the first.