BEA: Initial 2Q GDP grows at 4% pace driven by consumer spending

Advance, incomplete estimate subject to two more revisions

Real gross domestic product increased at an annual rate of 4% in the second quarter of 2014, according to the "advance" and incomplete estimate released by the Bureau of Economic Analysis Wednesday.

Market watchers and skeptics urge caution on exuberance based on this initial optimistic report, as it is a rough estimate and subject to large revision in late August as more data is added into the calculation.

The BEA also emphasized that the second-quarter advance estimate released Wednesday is based on source data that are incomplete or subject to further revision by the source agency. The second estimate for the second quarter, based on more complete data, will be released on August 28, 2014.

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (largely driven by credit card purchases), private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

“What is interesting is that the Commerce Department announced that as a result of incomplete June data, the biggest components of the GDP beat, Inventories and Trade, were estimated,” notes ZeroHedge. “In other words, assume that future revisions of Q2 GDP will be lower, not higher, as the actual data comes in, and especially as the CapEx data, which contrary to the GDP report, has not rebounded.

“Speaking of revisions, today the BEA also released its annual revision of all data from 1999 to Q1 2014, which made last quarter's -2.9% print a more palatable -2.1%, in the process throwing everyone's trendline calculations off as yet another GDP redefinition was implemented,” ZeroHedge says.

Consumer spending, the main source of economic activity, accelerated to show a solid 2.5% gain after a meager 1.2% rise in the first quarter. Bigger stock dividends helped to boost inflation-adjusted disposable income by 3.8% and underpin the upturn in spending, mainly on durable goods such as cars and trucks. 

Historically, average GDP growth since 2009 has been measured at a pace of 2.1%.

With the revised 1Q and the initial 2Q numbers, that makes growth in the first half of 2014 come in at 1%.

One other big area of concern among analysts Wednesday morning was the fact that growth in inventories contributed 1.66%.

Unexpected buildups in inventories can signal future cutbacks in production, which suggests that component could slow significantly in the third quarter, also affecting employment.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.9% in the second quarter, compared with an increase of 1.4% in the first.

The first quarter’s initial GDP report said there was a 1% increase in GDP, but that was revised down to 2.9% in the final revision. That final was revised to -2.1% in this report.

The revised first-quarter contraction was the biggest decline since early 2009 when it hit -6.9%.

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