Q2 GDP Growth Comes In At 4.2%

Q2 GDP Growth – Revised Higher

Q2 GDP Growth – Even though Q2 is long gone, we need to review the Q2 GDP revision because the data is now much more accurate. If you only look at the advanced reports, you’ll be missing out on what actually happened.

I expected GDP growth to be revised lower from the initial report of 4.1% because of weakness in consumer spending. We got the consumer spending weakness as growth was 3.8% instead of 4%.

However, the overall number was still revised higher from 4.1% to 4.2%. Overall growth beat estimates by 0.2% and consumer spending growth missed estimates by 0.1%. The GDP price index was 3% which was the same as the initial report and estimates.

The updated report was hurt by a deeper contraction in residential investment. Also, it was helped by upward revisions to non-residential fixed investment, government purchases, inventories, and net exports.

Consumer spending on durables and non-durables was revised lower, but the revised numbers were still strong. Growth in durables spending was 8.6% and growth in non-durables was 3.7%.

Services spending growth was unchanged at 3.1%. Residential investment was revised lower from -1.1% to -1.6%. Non-residential fixed investment growth was pushed up 1.2% to 8.5%. The equipment component was up 4.4% and the intellectual property component was up 11%.

Inventory subtraction was a big reason growth didn’t hit 5%. It led to the possibility that inventory investment in Q3 would push growth much higher.

Inventories were revised to subtract a little less from Q2 GDP growth as they are now at $26.9 billion. Exports subtracted $6.2 billion less from GDP as they were revised to $843.7 billion.

Q2 GDP Growth – Corporate Profit Growth Accelerates

Corporate profit growth was interesting because growth was only 2.7% in Q1 even though S&P 500 profits exploded for gains of over 20%.

As you can see from the chart below, growth accelerated in Q2 as it was 6.7%. Profits hit a new record high. Pre-tax profits without inventory valuation and capital consumption adjustments were only up 0.2% which speaks to how much an impact the tax cuts had.