US GDP Q2 growth has been revised upward from 4% to 4.2%, after shrinking by 2.1% in the first quarter, the Bureau of Economic Analysis reported today.
The Bureau said today’s release is based on more complete data than last month’s advance estimate. However, the general picture for GDP growth remains the same, with a larger-than-previously estimated increase in non-residential fixed investment.
The growth in private inventory investment was revised downward, compared to last month’s estimate.
US GDP Q2 growth was mainly driven by positive contributions from:
- nonresidential fixed investment,
- private inventory investment,
- state and local government spending, and
- residential fixed investment.
Imports, which contribute negatively to GDP, increased.
Record corporate profits
With corporate profits also surging ahead, the US economic rebound is back on track. The Great Recession, the most severe since the Great Depression 80 years ago, ended in June 2009. However, the subsequent recovery has been haphazard and fragile. Economists hope Q2’s result may be the beginning of a sustained expansion.
Corporate profits have reached record levels, six percent higher than in Q1, after two successive quarters of falling profits. These figures have not been adjusted for inflation.
Government income from corporate tax increased by $39.7 billion in Q2, from $66.9 billion in Q1.
Recent data show that US factory orders have risen, while the number of people in jobs has increased.
What will the Fed do?
With growth prospects improving and inflation showing no signs of going up, the Federal Reserve System can reduce its monthly asset purchases further while holding interest rates down.
Bloomberg News quoted Scott Brown, chief economist at Raymond James & Associates, who said “There is more optimism among businesses about increased demand. Ultimately, the Fed has to think seriously about the end game, though there is no need to hit the brakes any time soon.”
The US dollar firmed against other major currencies on the news, but US shares declined as investors focused on developments in the Ukraine, which today accused Russian troops of entering the country.
(Data source: Bureau of Economic Analysis)
Consumers, however, continue to struggle. Growth in personal consumption rose by 2.5% in Q2, which is much lower than the recovery average.
The Bureau of Economic Analysis will release its third estimate for Q2 GDP on September 26.