GDP Growth Strong in Q2

September 4, 2007--The GDP grew at a 4.0% rate in the 2nd quarter, a welcome improvement from the weak 0.6% growth in the 1st quarter. Existing home sales fell 0.2% in July and are down 9.0% compared to a year ago. Concurrently, personal income rose 0.5% and the PCE deflator inched up only 0.1%.Lastly, factory orders increased a larger-than-expected 3.7%.

 

Gross Domestic Product
The 'preliminary' estimate by the BEA indicates that the GDP grew 4.0% in the 2nd quarter, rebounding from the anemic 0.6% increase in the 1st quarter. GDP growth was driven by an improvement in the trade balance as well as stronger government spending. The weak housing market continues to be a negative weight, but its drag on growth is gradually decreasing. Corporate profits set a new record, increasing $98.3 billion to $1.646 trillion. Lastly, on a year-ago basis, the GDP has increased 1.9%, well below its growth potential of 3.0%.

 

Existing Home Sales
Sales of existing homes fell 0.2% in July to 5.75 million units (seasonally adjusted annual rate) and are down 9.0% on a year-over-year basis. Concurrently, the median sale price for an existing home fell 0.1% to $228,900 and is down 0.6% compared to last July. Lastly, inventories jumped 5.5% to 9.6 months of supply and are up 31.5% compared to June 2006. Overall, the housing market remains weak.

 

Personal Income
Personal income rose 0.5% in July, improving on the 0.4% increase in June. Concurrently, consumption grew 0.4%. On the inflation front, the numbers were encouraging. Both the top-line PCE deflator and the core PCE deflator, which excludes food and energy, grew only 0.1%. On a year-ago basis, the PCE deflator is up 2.1% while the core PCE deflator has increased 1.9%. Lastly, the saving rate improved in June, increasing to 0.7%.

Factory Orders
Factory orders rose a larger-than-expected 3.7% in July, following a 1.0% increase in June. The increase was driven by a 6.0% jump in orders for durable goods and a 1.3% rise in non-durable goods orders. Orders for core capital goods, which are a proxy for business investment spending, rose 1.7%. Furthermore, unfilled orders grew 2.4% in July as inventories rose 0.2%. Lastly, shipments grew 2.6%.