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August 30, 2017 Blog 1 min read
Q2 GDP revised upward to 3.0 percent, beating expectations.

Chart describing the different in CDP from 2007 to present

The economy grew at an accelerated pace in the second quarter, reaching a pace that even exceeded expectations.

The revised estimate released by the Commerce Department this morning revealed that the U.S. economy grew at a brisk 3.0 percent quarter-over-quarter rate for the three months ended June 30, beating the previous estimate of 2.6 percent. Economists had called for an upward revision to 2.7 percent.

If the top-line growth number wasn’t enough of a positive, the underlying story also provides some reasons for optimism. Consumer spending bounced back strongly, growing by 3.3 percent after a pedestrian 1.9 percent advance in Q1. Spending on goods in particular perked up, with purchases of durable goods surging by 8.9 percent.

In the immediate aftermath of the Presidential election in November, business confidence soared, and surveys indicated a much greater willingness of businesses to ramp up capital spending budgets. The evidence of that change in tone was apparent in Q2, as nonresidential investment grew at a strong 6.9 percent clip. While President Trump has been challenged in pushing forward his economic agenda, surging business investment is a positive sign and provides a private sector vote of confidence in the economic outlook.

Business inventories, which can have a material impact on top-line growth as they fluctuate, were effectively flat during the quarter. Similarly, government spending was essentially unchanged, as modestly tighter budgets at the state and local level offset a modest uptick in defense spending.

Taking the first quarter growth estimate of 1.2 percent at face value, the economy started the year off at yet another sluggish pace. However, the “curse of the first quarter”, which dates back to 2000, has produced weak GDP readings that have averaged about 1 percent, typically followed by much better reported growth for the duration of the year. The significance and persistence of this trend suggests some problem with how the government applies seasonal adjustments in their calculations. Some of the rebound in Q2 may be attributable to that anomaly. Sustained acceleration in Q3 and beyond would go a long way in building confidence that stronger growth can be sustained.

All things considered, there are a number of positives in today’s report that illustrate that, at a minimum, the economy remains on track, with the potential for better days ahead.

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