GDP for the second quarter surprised to the upside, beating consensus estimates for a 3% gain, as the economy grew at a 4% annualized rate. Gains in Q2 reflected positive contributions from private inventory investment, personal and government consumption and an acceleration in both nonresidential and residential fixed investment, which were offset by net exports (Chart 1). Moreover, revisions to the data (which altered GDP back to 1999) resulted in less of a downturn in Q1 2014; gains in 2013 were also greater than had previously been announced. (While real GDP growth was revised down by 0.2 percentage points for 2011 and 0.5 percentage points for 2012, 2013 growth was revised up by 0.3 percentage points (Table 1).
Chart 1. Contributions to Real GDP, by Component (in percentage points)
Table 1. Prior and Current Quarterly Growth Rates in GDP, Pre- and Post-Benchmark Revision
Where Were the Surprises?
While personal consumption expenditures, which rose at a 2.5% real rate in Q2, were stronger than expected, the primary reason was a 14.0% quarterly (annualized) gain in durable goods. Autos contributed a 0.4 percentage points to GDP, one of the larger gains recently. Moreover, the change in private inventories contributed 1.66 percentage points of the 4.00 percentage point gain in GDP, meaning that autos and inventory gains together were responsible for more than half of the growth in the second quarter. Additionally, after two prior quarters of negative contributions, both residential investment and government consumption and investment contributed positively to Q2 as well (by 0.23 percentage points and 0.30 percentage points, respectively.)
How Did Investment in Commercial Structures Fare?
Private nonresidential fixed investment comprises investment in equipment (information processing equipment such as computers, industrial equipment and transportation equipment), intellectual property products (such as software, research and development, and movies) and structures (such as offices, health care facilities and manufacturing facilities, among other categories.) In the first release of GDP for the quarter, investment in commercial structures and health care structures are grouped together, although office investment typically makes up 1/3 of total investment in the commercial/ health care category. Today’s results are welcome news: Q2 2014 fixed investment in commercial and health care structures rose by an annualized 1.5%, as shown in Chart 2, although this follows a disappointing drop in Q1. Details on office investment alone will be released within the next two weeks.
Chart 2. Real Investment in Commercial and Health Care Structures, Quarterly Annualized Percentage Change