Second quarter GDP figure is at the head of the class
July 31, 2014
In most schools, the figure 4.0 represents perfection, or, the “Gold Standard,” if you will, with straight A’s across the board (I cannot speak to this based on my own academic experience, but that is my understanding anyhow).
Yesterday, the United States Bureau of Economic Analysis (BEA), which is housed in the Department of Commerce, released its advance estimate for second quarter GDP, and guess what it came in at? By now, you probably know, it is 4.0 percent, which is a very good number in any type of economic environment, but especially in the current one, which has seen many signs of hope and an equal amount of head fakes over the last six years or so. Interesting economic times does not even begin to cover it, it seems.
What’s more, the 4.0 GDP mark easily trumps the first quarter’s -2.1 percent tally, which was revised from -2.9.
As for what drove the 4.0 percent second quarter GDP, one obvious factor was a goodbye to winter, which wreaked havoc on the economy, and, subsequently, supply chain operations, in the form of missed deliveries, longer transit times, and clogged networks, among other factors.
The Commerce Department’s BEA cited other factors, too, including positive contributions from personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment, while imports dipped.
Of keen interest to supply chain stakeholders in this batch of data is that the change in private inventories accounted for 1.66 percent, or more than 25 percent, to the total second quarter GDP advance estimate. This data point is particularly impressive in the sense that in the deflating first quarter private inventories contracted 1.16 percent. The BEA noted that private business investment in inventories in the second quarter hit $93.4 billion for the quarter, with the first quarter at a little less than one-third of that figure at $35.2 billion.
Of all the things to be pleased about in this report, it stands to reason that the rebound in inventories may be the valedictorian en route to the 4.0 percent GDP level. Why? For one thing, it speaks to healthier freight volumes, more fluid freight networks, and an improving consumer outlook, too.
It is worth noting that the last point is approaching levels that have not been seen in more than a long time. We all know one month does not make a trend (except for Major League Baseball teams fighting for playoff position), but it is worth bringing up consumer confidence data issued this week by the Conference Board.
The Conference Board reported that consumer confidence for the month of July checked in at 90.9, topping June’s 86.4, and standing as its highest reading going back to October 2007.
Lynn Franco, Director of Economic Indicators at The Conference Board, said in a statement that “Consumer confidence increased for the third consecutive month and is now at its highest level since October 2007 (95.2). Strong job growth helped boost consumers’ assessment of current conditions, while brighter short-term outlooks for the economy and jobs, and to a lesser extent personal income, drove the gain in expectations. Recent improvements in consumer confidence, in particular expectations, suggest the recent strengthening in growth is likely to continue into the second half of this year.”
With the year more than half over, economic conditions appear to be in better shape at this point of the year than they have in more than half a decade. It remains to be seen how things will play out, but at least, for now anyhow, the economy is closer to the head of the class than in summer school.
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