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Real GDP was revised down in the second quarter, from an annualized growth rate of 2.4 percent to 1.6 percent, faring slightly better than most expectations. The downward revision was primarily the result of downward adjustments to inventory investment and exports, and an upward revision to imports. Private inventory accumulation was knocked down by $12.5 billion, pulling its contribution to output growth down from 1.1 percentage points (pp) to 0.6 pp in the second quarter. Residential investment was virtually untouched, as was the headline growth rate in business fixed investment, though its composition changed. Private investment in equipment and software was revised up from an increase of 21.9 percent to 24.9 percent (now its strongest quarterly growth rate since the mid-1980s). Investment in structures was revised down from a gain of 5.1 percent to nearly flat growth (0.4 percent) in the second quarter. Still, that is a marked improvement over a loss of 17.8 percent in the first quarter. The concurrent downward adjustment to exports and upward revision to imports subtracted an additional 0.6 pp over the advance estimate and left the contribution from net exports at −3.4 pp.
Much of the overall downward revision to real GDP growth was “as expected,” though there was at least one positive development. Personal consumption expenditures were revised up from a 1.6 percent increase to a gain of 2.0 percent, adding an additional 0.2 pp to growth. Now the second quarter growth rate in consumption is slightly higher than the 1.9 percent gain in the first quarter, compared to a previous deceleration. Final sales (GDP less inventories)—a somewhat clearer picture of demand—rose 1.0 percent in the second quarter, compared to 1.1 percent in the first, and its four-quarter growth rate rose from 0.9 percent to 1.1 percent. Also with the second estimate, we get our first look at Gross Domestic Income—a measure of aggregate demand that uses information from the income side of the accounts, including corporate profits and other data from the IRS. Real GDI rose 2.3 percent in the second quarter, though that is a deceleration from a 4.1 percent gain in the first quarter. However, its year-over-year growth rate improved from 2.2 percent to 3.2 percent, which is firmer ground than final sales would suggest.