By Thomas Cooley and Peter Rupert
Friday the BEA announced that the advance estimate for Q2 has real GDP increasing 4.1% at an annual rate. This is the largest increase since Q3 of 2014. Personal consumption expenditures (PCE) grew 4.0% after a weak Q1 at 0.52%. Moreover, PCE was the largest contributor to the growth at 2.69 percentage points. Note that the annual GDP revisions included a rebasing of the “real” GDP figures to a reference year of 2012 instead of 2009.
Private fixed investment was up 5.4% after increasing 8.0% in Q1. Real non-residential investment in structures grew 13.3% and residential fell, -1.1%. Since 1999 the changes in non-residential investment are uncorrelated with residential investment.
Exports were up 9.3% and imports 0.5% leading to a change in net exports of $52.4 bln.
The quarterly PCE chain-type price index increased 1.8% at an annual rate and ex-food and energy at 2.0%.
The BEA released personal income this morning with a 0.3% increase over the month in real terms after a weak April (0.1%) and May (0.2%).
The Bigger Picture
Although there were some downward revisions to the last three quarters of 2017 the strength of this report, in both output and prices, along with the strong June employment report, should not change the course of expected Fed rate hikes in their September and December deliberations. However, will we see some momentum to raise rates this week given that many expect Q3 growth to come in over 3%? Many observers think the Fed is now a bit behind the curve with price increases beginning to have some bite throughout the economy.
