Advance Estimate 2Q2014 GDP Growth Jumps To 4.0%, Above Expectations

The advance estimate of second quarter 2014 Real Gross Domestic Product (GDP) is a positive 4.0%.

• The market expected GDP at +2.3% to 4.0% (consensus 3.1%).
• This data point was just revised from a negative 2.9% in 1Q2014 to negative 2.1%.

 

 

Before you believe the economy is taking off like a rocket, one must consider:

• This advance estimate released today is based on source data that are incomplete or subject to further revision. (See caveats below.) Please note that historically advance estimates have turned out to be little more than wild guesses.

• Headline GDP is calculated by annualizing one quarter’s data against the previous quarters data (and the previous quarter was terrible in this instance). A better method would be to look at growth compared to the same quarter one year ago. For 2Q2014, the year-over-year growth is 2.4% – up from 1Q2014’s 1.9% year-over-year growth. So one might say that GDP accelerated 0.6% from the first quarter.

• 1.7% (over 40% of GDP growth) was attributable to inventory gain.

Real GDP Expressed As Year-over-Year Change

Real GDP is inflation adjusted and annualized – the economy remains below the 2013 peak if viewed on a per capita basis.

Real GDP per Capita

The table below compares the 1Q2014 third estimate of GDP (Table 1.1.2) with the advance estimate 2Q2014 GDP which shows:

• consumption for goods and services has improved;
• trade balance again worsened;
• there was an inventory growth adding almost 1.7% to GDP;
• fixed investment improved;
• government spending actually added to GDP.

The arrows in the table below highlight significant differences between 1Q2014 and 2Q2014 (green is good influence, and red is a negative influence).

[click on graphic below to enlarge]

 

 

What the BEA says about this advance estimate:

Real GDP increased 4.0 percent in the second quarter, after decreasing 2.1 percent in the first. This upturn in the percent change in real GDP primarily reflected upturns in private inventory investment and in exports, an acceleration in PCE, an upturn in state and local government spending, an acceleration in nonresidential fixed investment, and an upturn in residential fixed investment that were partly offset by an acceleration in imports.