Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Why Investors Care
| Released on 7/27/07 For Q2 Advance 2007 | |||||||||||||||||||||||||
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Highlights
Second quarter real GDP strengthened to an annualized 3.4 percent from an anemic 0.6 percent pace in the first quarter. The second quarter growth rate was above the market forecast for a 3.2 percent boost in GDP. The stronger second quarter growth was primarily due to a jump in nonresidential structures investment, stronger exports, and a decline in imports. As expected, residential investment was quite negative. However, personal consumption growth slowed notably.
On the inflation front, the GDP price index slowed to 2.7 percent pace, following a 4.2 percent increase in the first quarter. The second quarter price index growth rate was well below the consensus projection for a 3.4 percent annualized increase. The core PCE price index also slowed to a 1.4 percent growth rate in the second quarter, after a 2.4 percent boost in the first quarter.
Year-on-year, real GDP rose to up 1.8 percent in the second quarter from up 1.5 percent in the first quarter. Year-on-year, the GDP price index edged down to up 2.7 percent year-on-year in the second quarter from up 2.9 percent in the prior quarter. The core PCE deflator growth rate year-on-year stood at 2.0 percent in the second quarter, compared to 2.4 percent in the first quarter.
Today's report shows a healthy economy with overall inflation lower than expected. But today's economy is different from the second quarter. Oil prices are higher. And a key question mark from the report is whether the consumer is holding up. Markets may not be looking at the details and may like the report and support equities a little against the rush of the bears which may continue from tomorrow despite today's GDP report. Bonds will not like the strong growth number but flight to quality may keep rates down along with the good price numbers.
For the final revision, first quarter real GDP was revised up incrementally to an annualized 0.7 percent from the previous estimate of 0.6 percent. New GDP data will give us a broader picture for the first time for the second quarter. Most economists expect a notable improvement from the flat first quarter due to improvement in exports and inventory investment while consumer expenditures and business fixed investment continue healthy gains. We will also get to see annual revisions going back through 2004.
Real GDP Consensus Forecast for advance Q2 07: +3.2 percent annual rate
Range: +2.9 to +3.9 percent annual rate
GDP price index Consensus Forecast for advance Q2 07: +3.4 percent annual rate
Range: +2.0 to +4.0 percent annual rate
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Real GDP growth is always quoted at a quarterly annual rate. It measures how much the economy has grown over a three-month period. Quarterly growth rates are often volatile; consequently, economists also like to look at the year-over-year growth in GDP. The yearly changes tend to be more stable. |
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It is common to compare quarterly changes at annual rates in the GDP deflator. These can be volatile, just like the quarterly swings in real GDP growth; as a result, the trend in inflation is better determined by year- over- year changes. |
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