US economy expands 2.6% in Q2 against 1.2% in Q1

29 July 2017

US economic growth accelerated to 2.6 per cent in the second quarter as businesses ramped up investment and consumers increased spending despite sluggish wage gains, the commerce department said in its advance estimates released on Friday.

Real gross domestic product increased at an annual rate of 2.6 per cent in the April-June 2017 quarter, also partly boosted by rising trade gains, the release said.

The US economy had grown at a slower pace of 1.2 per cent (revised) in the previous quarter (January-March 2017), estimate released by the Bureau of Economic Analysis on Friday stated.

The second-quarter advance estimate is subject to revision as fresh data come in, the bureau said, adding that the "second" estimate for the second quarter, based on more complete data, will be released on 30 August 2017.

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), non-residential fixed investment, exports, and federal government.

The estimates reflect the results of the annual update of the national income and product accounts (NIPAs) in conjunction with the "advance" estimate of GDP for the second quarter of 2017. The update covers the first quarter of 2014 through the first quarter of 2017.

The acceleration in real GDP growth in the second quarter reflected a smaller decrease in private inventory investment combined with an acceleration in personal consumption expenditure and an upturn in federal government spending.

These gains were partly offset by a downturn in residential fixed investment and decelerations in exports and in nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, also, increased.

GDP at current-dollar rates increased 3.6 per cent, or $169.0 billion, in the second quarter to a level of $19,226.7 billion. In the first quarter, current-dollar GDP increased 3.3 per cent (revised), or $152.2 billion.

The price index for gross domestic purchases increased 0.8 per cent in the second quarter, compared with an increase of 2.6 per cent in the first quarter (revised). The PCE price index increased 0.3 per cent, compared with an increase of 2.2 per cent. Excluding food and energy prices, the PCE price index increased 0.9 per cent, compared with an increase of 1.8 per cent.

Personal income
Personal income at current-dollar rates increased $118.9 billion in the second quarter, compared with an increase of $217.6 billion in the first quarter (revised). The deceleration in personal income primarily reflected decelerations in wages and salaries, in government social benefits, in nonfarm proprietors' income, and in rental income, and downturns in personal interest income and in farm proprietors' income.

These movements were offset by an upturn in personal dividend income.

Disposable personal income increased $122.1 billion, or 3.5 per cent, in the second quarter, compared with an increase of $176.3 billion, or 5.1 per cent, in the first quarter (revised). Real disposable personal income increased 3.2 per cent, compared with an increase of 2.8 per cent.

Personal saving was $546.8 billion in the second quarter, compared with $553.0 billion in the first quarter (revised). The personal saving rate -- personal saving as a percentage of disposable personal income - was 3.8 per cent in the second quarter, compared with 3.9 per cent in the first.

There was, however, little inflation in the economy in the second quarter and wage growth decelerated despite a tightening labor market. That could put the Federal Reserve in a tight spot as it looks to raise interest rates one more time this year.

Prices of US government debt rose after the release of the data while the dollar initially fell against a basket of currencies. US stock index futures pared losses slightly.

Economists expect the Fed to announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities in September.

The US central bank left rates unchanged on Wednesday and said it expected to start winding down its portfolio "relatively soon."

The rise in second-quarter GDP was in line with economists' expectations. The economy was previously reported to have grown at a 1.4 percent pace in the first quarter.

The economy grew 1.9 per cent in the first half of 2017, making it unlikely that GDP would top 2.5 per cent for the full year. President Donald Trump has set an ambitious 3.0 per cent growth target for 2017.

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