Economic Research and Data

Economic Trends

Filling you in on the current state of the economy

09.04.07

Economic Activity and Labor

Real GDP: Preliminary Estimate

Real GDP grew at a 4.0 percent annualized rate in the second quarter of 2007, well above last quarter’s 0.6 percent growth and above the 1.9 percent growth seen over the last four quarters. Personal consumption increased 1.4 percent, down from 3.7 percent in the first quarter. Business fixed investment grew 11.1 percent on a strong increase in structures. Residential investment, however, continued to deteriorate, falling 11.6 percent.

Real GDP and Components, 2007:II (preliminary estimate)

        Annualized percent change, last:
2007:IIQ Preliminary estimate Quarterly change, billions of 2000$ Quarter Four quarters
Real GDP
111.2
4.0
1.9
  Personal consumption
29.5
1.4
2.9
    Durables
5.2
1.7
5.0
    Nondurables
−2.1
−0.4
2.5
    Services
26.0
2.3
2.8
  Business fixed investment
35.2
11.1
4.1
    Equipment
10.9
4.2
0.6
    Structures
17.8
27.7
12.8
  Residential investment
−15.3
−11.6
−16.4
  Government spending
20.2
4.1
1.9
    National defense
10.2
8.6
2.8
  Net exports
41.0
    Exports
24.9
7.6
7.1
    Imports
−16.1
−3.2
1.9
    Change in business inventories
5.3

Source: Bureau of Economic Analysis.

Real GDP growth was revised up from 3.4 percent (annualized rate) in the advanced report, to 4.0 percent in the preliminary estimate. Unfortunately, that may be unsustainable, as the Blue Chip Panel of Economists expects growth to fall back under 3 percent well into next year.

Investigating the contribution of various GDP components to the percent change in real GDP tells us that the upward revision was primarily due to upward adjustments in business fixed investment and exports, as well as a downward revision in imports, which was partially taken back by a downward revision to residential investment. Import growth subtracts from GDP growth. Therefore, a downward revision to imports (−3.2 percent from −2.6 percent) translates into a bump in real GDP growth of 0.1 percentage point.

The final release for the second quarter of 2007 is due on September 27, 2007. Looking back over the last four quarters, final revision usually puts GDP growth in between the advanced and preliminary estimates (with the exception of last quarter). While completely arbitrary, since the revisions are based on more complete information and not an average of the first two estimates, if the observation holds true with the next revision, this should still prove to be the strongest quarter (for GDP growth) since the first quarter of 2006.

Economic Trends is published by the Research Department of the Federal Reserve Bank of Cleveland.

Views stated in Economic Trends are those of individuals in the Research Department and not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. Materials may be reprinted provided that the source is credited.

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