Overall revisions to second quarter real GDP were fairly minor. Real GDP growth was revised up one tick to 6.6%, from 6.5% in the advance estimate.
Upward revisions to nonresidential fixed investment were a key feature, growing at a 9.3% annualized pace, compared to 8.0% in Q1. The decline in structures investment was revised up from -6.9% to -5.4%.
Export growth was also revised up to 6.6%, compared to 6.0% in earlier estimates. Consumer spending was revised up modestly to 11.9%, versus 11.8%.
Partially offsetting these upward revisions was a larger contraction in residential investment (-11.5% versus -9.8% in advance), a larger drawdown in inventories, and lower spending by state and local governments.
Corporate profits were reported with the second estimate and showed profits up $234.5 billion (or 42.2% annualized) compared to an increase of $123.9 bn in the first quarter. Corporate profits hit 12.3% of GDP, the highest share since 2014.
Key Implications
Revised data show that growth in the U.S. economy was very slightly stronger in the second quarter than previously reported. As we sit in the back half of August the real question is how well spending will hold up against the current Delta wave. Growth in the third quarter is still tracking a very healthy 5%+ pace, but some high-frequency indicators are pointing to a loss in momentum in spending as consumer caution creeps in.
Overall, we would expect any slowing in spending to be temporary. In aggregate, U.S. households have amassed over $2.5 trillion in excess savings over the course of the pandemic, providing a substantial cushion against a temporary slowing in momentum, even if it is unevenly distributed. If reports of labor shortages are true, companies might be less likely to lay workers off during a temporary lull in demand. Still, all eyes will be on Chair Powell’s Jackson Hole remarks tomorrow at 10 am to see how the Fed is thinking about Delta’s impact and whether this has any bearing on its decision on when to taper asset purchases.
