U.S. Q2 GDP growth revised down slightly from first estimate, likely to accelerate 3 pct in Q3

The second estimate of U.S. second quarter GDP came in slightly lower than its preliminary estimate, but in line with consensus projection. The BEA’s second estimate showed that the US economy expanded at an annualized rate of 1.1 percent, as compared with the earlier estimate of 1.2 percent growth. Although the reading was revised down, the details remained quite positive on the private domestic demand front.

Consumer spending was upwardly revised from 4.2 percent to 4.4 percent. All major components were revised upwards. Meanwhile, business fixed investment was upwardly revised from -3.2 percent to -2.5 percent, thanks to a solid upward revision to intellectual property products.

The major downward revisions were seen from government, which negatively contributed 0.3 percentage points to the headline. Also, net-exports were revised down, whose positive contribution to the headline was downwardly revised to 0.1 percentage points from 0.2 percentage points. Meanwhile, inventory investment negatively contributed 1.3 percentage points to the headline figure.

On the other hand, inflation was upwardly revised for the second quarter, with the GDP price index revised from 2.2 percent to 2.3 percent sequentially. Consumer price indexes were upwardly revised too, with the headline reaching 2 percent in sequential terms, while core index was up 1.8 percent from the initial estimate of 1.7 percent.

Moreover, corporate profits dropped 1.2 percent in the second quarter, after a rise of 3.4 percent in the first quarter, according to the preliminary estimate. On an annual basis, profits dropped 4.9 percent in the second quarter, a rebound from the 6.6 percent drop in the first quarter.

Looking at the upwards revision to private domestic demand growth, the real GDP is expected to accelerate to 3 percent in the  third quarter, stated TD Economics in a research note. The recent positive data, such as regional manufacturing surveys and capital goods orders imply an improvement in investment in the third quarter.

Meanwhile, household spending is expected to remain at the second quarter levels, while personal spending is likely to decelerate to around 2.5 percent in the second half of 2016, said Barclays in a research report.  Business fixed investment growth is anticipated to remain tepid, but the drawdown in inventories is quite complete and the category is expected to add modestly to growth in quarters ahead.

“We maintain our outlook for 2.0 percent growth in 2H 16”, added Barclays.