U.S. GDP performed a little better than initially reported. The annualized Gross Domestic Product (GDP), growth rate in the third estimate of the second quarter, (Q2) of 2017 was revised upwards to 3.1%. This was a 0.5 point upward revision from the first estimate of 2.6% and a 0.1 point upward revision from the second estimate. The U.S. economy is steadily growing and the economic outlook for the remainder of the year and 2018 look promising.

The largest contributor was consumer spending accounting for 2.2 percentage points of GDP growth, up from 1.3 percentage points in Q1. Fixed investment, inventories and trade also made positive contributions to GDP in Q2.

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. The growth calculation is misleading because it takes the Q over Q change and multiplies by 4 to get an annualized rate. This makes the high quarters higher and the low quarters lower.

The six major components that add to make up the headline GDP number include: Personal consumption, Fixed Non-residential investment, Fixed Residential investment, Inventories, Net exports and Government. Personal consumption contributed 2.24 percentage points, Fixed Non-residential investment contributed 0.82 percentage point, Fixed Residential investment declined, subtracting 0.30 percentage point. Net exports contributed 0.21 point, while Government spending was a negligible drag, pulling GDP down by -0.03 points. Year on year, (y/y) annualized GDP advanced 0.82 percentage points compared to Q2-2016.

Real disposable income increased 3.3%, up 0.4 percentage points from the first quarter. The personal saving rate in Q2 was 3.8% down a tick from Q1. Inflation in Q2, (excluding food and energy) was 0.9% down for 1.8% in Q1. Corporate profits increased 0.7% in Q2, up sharply from a -2.1% in Q1.

gdp-q2-fig1Figure 1 shows the headline quarterly results since 2007 and the January International Monetary Fund (IMF), forecast through for 2017. On July 24th, the IMF forecast for the year 2017 was revised down 0.2 percentage points to 2.1% GDP growth. The IMF forecast for 2018 is also 2.1%. The primary assumption for the downward revisions was, less accommodating fiscal policy than previously anticipated. The Federal Reserve of Atlanta frequently updates its U.S. annualized GDP forecast. In its September 27th update the Atlanta FED projected 2.1% for the 3rd quarter.

Global GDP growth is picking-up and is now projected at 3.5% in 2017, accelerating to 3.6% in 2018.

The US economy has been expanding for eight years now and looks to continue to grow at its trend rate of about 2% going forward. It appears that more than 2 million jobs will created this year. Both unemployment and underemployment are steadily declining. Consumers are benefiting from a strong job marketplace, their personal balance sheets are healthy, and credit is widely available.

Businesses are profitable, interest rates are low and the stock market is in record territory and the prospect of lower tax costs are buoying continued optimism. In addition, all major global economies are expanding for the first time in a decade. Economic prospects through the remainder of this year and next remain positive. Concerns on the horizon include; a greater than expected shock to the near-term trajectory from the hurricanes, the tense situation with North Korea and political gridlock.

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.