Friday, August 27, 2010

GDP Revised Lower to 1.6%

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.6 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent.


The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, personal consumption expenditures, exports, federal government spending, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the second quarter primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending.

Let's take a look at the contributions to the percentage change:

The big issue is that imports subtracted 4.45 points from growth. Everything else is OK. From the preceding quarter, notice the PCEs increased 2%, gross private domestic investment increased 25%, exports were up 9% and government spending increased 4.3%. Imports increased a 32.4%, largely because of a 39.3% increase in imported goods. In other words, the real issue here is the increase in the trade deficit:

I'll touch on this for the rest of the day.