The annualized Gross Domestic Product (GDP), growth rate in the first estimate of the second quarter (Q2), of 2017 was 2.57% according to the Bureau of Economic Analysis (BEA). This value was not as high as originally forecast but was up nicely from the revised 1.24% posted for the first quarter. Stronger consumer spending was the principal driver for the improved results.

GDP is a measure of the total production and consumption of goods and services in the U.S. This is the broadest measure of economic output. The Bureau of Economic Analysis (BEA), constructs two complementary measures of GDP, one based on income and one based on expenditures. GDP is measured and reported in chained 2009 dollars.

gdp-q2-fig1Figure 1 shows the headline quarterly results since 2007 and the January International Monetary Fund (IMF), forecast through for 2017 and 2018. The IMF forecast for the year 2017 was reduced 0.2 percentage points to 2.1% GDP growth and by 0.4 percentage points to 2.1% GDP growth in its July 28th update. The main factor behind the growth amendment was the assumption that fiscal policy will be less expansionary than previously assumed. It was also noted market expectations of fiscal stimulus have also retreated.

The IMF reports that global growth has been revised upwards from its April, forecast on stronger growth from several advanced economies including Canada, France, Germany, Italy, and Spain as well as better results from developing countries to include Brazil, China, and Mexico. Global growth is expected to achieve 3.5% in 2017, rising to 3.6% in 2018.

Figure 2gdp-q2-fig2 shows the contributors to GDP extended back through Q1 2007 and describes the quarterly change in the six major subcomponents. Much stronger consumer spending was the principal driver of growth, contributing 1.93 percentage points, up 0.61 percentage point quarter on quarter (q/q). Fixed investment contributed 0.36 percentage point, led by nonresidential investment (+0.64), as residential investment fell 0.27 percentage points. Net exports added 0.18 percentage points and government spending added 0.12 percentage points. Inventories were neutral for growth in Q2 after providing a significant drag of -1.46 percentage points in Q1.

Stronger growth in Q2 helped to offset a weak Q1. Continued broad-based job creation at near 200,000 per month is solid evidence of a strong and growing economy. Multiple sources of growth make for a more stable economy and a longer expansion. Growth in consumer spending rebounded as the strength of household balance sheets, coupled with high levels of consumer, business and investor confidence are also consistent with a strong economy.

At Gerdau we regularly evaluate the quarterly BEA GDP report to get a read on current economic strength as well as a “read” on the likely short-run future.