GDP Growth Slowed to 2.6%; Corporate Profits Surged 18.5%

The economy grew at an annual rate of 2.6% in the second quarter, 0.3 percentage point less than in the "preliminary" estimate of 2.9% and 3.0 percentage points less than in the first quarter, according to the "final" estimates released by the Bureau of Economic Analysis. The second-quarter slowdown comes after the economy sprinted ahead in the first three months of this year, expanding at a 5.6% pace, the strongest spurt in 2 1/2 years.

Second-quarter corporate profits grew 18.5% from the same quarter a year ago. Profits of financial corporations increased 29.6% and profits of nonfinancial corporations increased 10.7%.

The National Association for Business Economics is forecasting the economy to expand at a pace of 2.6% in the second half of this year. The economy has shifted into a slower gear due to a number of factors, including the cooling of the housing market, the toll of once surging energy prices and the impact of the Federal Reserve's two-year string of interest rate increases.

The deceleration in second-quarter GDP growth primarily reflected downturns in consumer spending on durable goods, in investment in equipment and software, and in Federal government spending. The downward revision reflected a downward revision to inventory investment and an upward revision to imports of services. Investment in home building plunged at an annualized rate of 11.1 percent in the spring, the most in 11 years.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 4.0% in the second quarter, the same as in the preliminary estimate; this index increased 2.7% in the first quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 2.9% in the second quarter, compared with an increase of 3.0% in the first.

  • Real personal consumption expenditures increased 2.6 percent in the second quarter, compared with an increase of 4.8 percent in the first.
  • Real nonresidential fixed investment increased 4.4 percent, compared with an increase of 13.7 percent. 
  • Nonresidential structures increased 20.3 percent, compared with an increase of 8.7 percent. 
  • Equipment and software decreased 1.4 percent, in contrast to an increase of 15.6 percent. 
  • Real residential fixed investment decreased 11.1 percent, compared with a decrease of 0.3 percent. 
  • Real exports of goods and services increased 6.2 percent in the second quarter, compared with an increase of 14.0 percent in the first. 
  • Real imports of goods and services increased 1.4 percent, compared with an increase of 9.1 percent. 
  • Real federal government consumption expenditures and gross investment decreased 4.5 percent in the second quarter, in contrast to an increase of 8.8 percent in the first. 
  • National defense decreased 2.0 percent, in contrast to an increase of 8.9 percent. Nondefense decreased 9.3 percent, in contrast to an increase of 8.5 percent. 
  • Real state and local government consumption expenditures and gross investment increased 4.0 percent, compared with an increase of 2.7 percent. 

The real change in private inventories added 0.44 percentage point to the second-quarter change in real GDP, after subtracting 0.03 percentage point from the first-quarter change. 

Private businesses increased inventories $53.7 billion in the second quarter, following increases of $41.2 billion in the first quarter and $43.5 billion in the fourth. 

Real final sales of domestic product -- GDP less change in private inventories -- increased 2.1 percent in the second quarter, compared with an increase of 5.6 percent in the first. Gross domestic purchases Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 2.0 percent in the second quarter, compared with an increase of 5.3 percent in the first. 

Gross national product Real gross national product -- the goods and services produced by the labor and property supplied by U.S. residents -- increased 2.3 percent in the second quarter, compared with an increase of 6.1 percent in the first. GNP includes, and GDP excludes, net receipts of income from the rest of the world, which decreased $5.6 billion in the second quarter after increasing $14.4 billion in the first; in the second quarter, receipts increased $45.0 billion, and payments increased $50.6 billion. 

Current-dollar GDP Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 5.9 percent, or $188.9 billion, in the second quarter to a level of $13,197.3 billion. In the first quarter, current-dollar GDP increased 9.0 percent, or $277.9 billion.

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