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Brent Meyer |

Economist

Brent Meyer

Brent Meyer is a former economist of the Federal Reserve Bank of Cleveland.

09.05.08

Economic Trends

Second-Quarter GDP Preliminary Revision: Onward and Upward?

Brent Meyer

Real GDP advanced at an annualized rate of 3.3 percent in the second quarter, outpacing its growth over the past four quarters, according to the preliminary release from the BEA. This is an upward revision of 1.4 percentage points from the advance estimate, and an extremely large revision when compared to the average advance–to–preliminary revision over the past 20 years of 0.5 percentage point (this is the absolute average—the average without regard to sign). If this estimate holds, the economy will have grown in the second quarter at a rate in excess of its average over the past 20 years (not bad for a quarter that, not too long ago, was expected to post near–zero growth).

Real GDP and Components, 2008:Q2 Preliminary Estimate

Quarterly change
(billions of 2000$)
Annualized percent change, last:
Quarter
Four quarters
Real GDP
94.3
3.3
2.2
Personal consumption
36.1
1.7
1.4
  Durables
−7.9
−2.5
−1.1
  Nondurables
24.7
4.2
1.3
Services
15.6
1.3
1.9
Business fixed investment
7.9
2.2
4.2
  Equipment
−8.9
−3.2
0.2
  Structures
10.6
13.6
12.7
Residential investment
−16.1
−15.8
−22.2
Government spending
19.4
3.9
2.6
  National defense
9.4
7.4
5.9
Net exports
85.4
  Exports
47.3
13.2
11.2
  Imports
−38.1
−7.5
−2.0
Private inventories
−49.4

Source: Bureau of Economic Analysis.

The upward revision was, in large part, due to favorable adjustments to net exports and private inventories. Exports increased 13.2 percent in the second quarter, revised up from 9.2 percent. At the same time, imports (which subtract from GDP growth) were revised down from a decrease of 6.6 percent to one of 7.5 percent. All told, the revision to net exports added 3.1 percentage points to real GDP growth in the second quarter, an additional 0.7 percentage point over the advance estimate. The sell-off in private inventories was not as dramatic as the advance release made it out to be, subtracting 1.4 percentage points from second-quarter growth, as opposed to a 1.9 percentage-point subtraction. Consumption growth was also revised up, increasing 1.7 percent in the second quarter (up from 1.5 percent in the first quarter), while the investment picture was largely unchanged from the advance release.

In contrast to the large contribution to real GDP growth from net exports in 2008:Q2 (3.1 percentage points), the average contribution to growth from net exports since 1980 has been −0.2 percentage point. In fact, the last time net exports added this much to growth was during the second quarter of 1980.

Looking forward, professional forecasters are expecting growth in the second half of the year to be weak, perhaps reflecting the drying up of the fiscal stimulus and the ongoing financial uneasiness. Although they still expect GDP growth to start to rebound toward its longer-term trend in 2009, 31 of the 50 forecasters on the Blue Chip panel revised their 2009 growth outlook down from their previous forecast.