File photo: Shipping-cranes-in move containers at a port in Portland, Oregon. (Photo: REUTERS)
The Commerce Department Thursday said they have upwardly revised second quarter GDP growth to show the U.S. economy grew at a 3.7 percent annual pace. Though the gross domestic product was initially estimated at 2.3 percent, following an adjustment by the government on the methodology for calculating growth, the Federal Reserve is still unlikely to hike interest rates in mid-September. The hike is likely to come this year sometime in December following recent market volatility.
“An increase [in rates] seems less compelling to me than it was a few weeks ago,” said New York Fed President William Dudley. Economists polled by Reuters had expected that second-quarter GDP growth would be revised to a 3.2 percent rate.
The GDP report, which was released in the wake of a global stock market sell-off, is the first since the government “adjusted” their longstanding methodology. The change, which again came after first quarter contraction, marks the second time the government has changed the previously long-standing methodology. In July 2013, the U.S. government made a significant change in the gross investment number (I), which now includes research and development (R&D) spending, art, music, film royalties, books and theatre. In the entertainment industry, for instance, much of those numbers are expected projections, such as how much they believe a movie will make at the Box Office.
This change in the method to gauge GDP —or, rewriting the GDP number— was first implemented by the United States, and India was quick to express an interest. Yet, unlike the U.S., India has made a reasonable case for revising their long-plagued methodologies. In the U.S., changing the method to boost investment measures has no real benefit to the truth and no other purpose but to make “GDP growth happy,” as Bloomberg correctly critiqued. Let’s take a look at the government’s claims.
Not surprising, these revisions to second-quarter growth also reflected the accumulation of $121.1 billion worth of inventories, up from the previous estimate of $110 billion. Because of the new method, inventories contributed 0.22 percentage point to GDP instead of subtracting 0.08 percentage point. Further, the build up in inventory will likely weigh down third quarter growth.
The energy sector, which is feeling the pinch of “severe” government regulations and preparing for historic rules in the future, naturally continued to weigh on growth. To be sure, spending cuts by oil-field companies like Schlumberger and Halliburton in the aftermath of a more than 60 percent plunge in crude oil prices since last year have taken a toll, as well.
In turn, spending on mining exploration, wells and shafts tanked at a 68.3 percent rate in the second quarter, which is the largest decline since the second quarter of 1986. This category was previously reported to have contracted at a 68.2 percent pace.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.1 percent rate, rather than the 2.9 percent pace reported last month. The trade deficit was smaller than previously reported, adding 0.23 percentage point to GDP growth.
The GDP report also showed after-tax corporate profits gained 1.3 percent in the second quarter after pluging 7.9 percent in the first quarter. A relatively strong dollar has weighed on the profits of multinational corporations.
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Aww.... Poor little tea baggers can't stand the fact the progressives dug the economy out of the giant hole w bushy left us in? Wah wah wah.... Google ought to be ashamed to link this tripe on its news feed.
Hmmm... MartolFart... Interesting. Between the name and the lavish ability to actually speak as to the nature of a GDP change in methodology I think we now know the definition of a 'Progressive'. Look I so not care if it is the left or the right that starts playing with numbers, when you change a methodology in order to get the results you want bad things come of it. I would suggest that thoughtful discussion in comments would create a better understanding of ideology but that would be wasted in this case.
This comment is for those that have real interest in thinking and discussion.
A revision of current standards of calculation, if not then applied retroactively cannot provide a meaningful data point.
Well said I.V. Baker. Bottom line: There is no reasonable justification for weighting investment so heavily and historically inappropriate. Never has that been done, and now we have changes twice in two years. Anyone who doesn't see something suspect with the story, is ideologically blind. And that's dangerous to liberty.
I see the point of this article (and the web page in general) as ideologically based criticism of the current (somewhat progressive) administration on the economy.... The GDP calculation methodology changes frequently for good reason and sometimes for political leverage by who ever is in charge; seldom retroactively. But my "old fart" point is the economy is in much better shape now than when the US ran up in excess of a trillion dollar off-budget deficit to go after non-existent WMDs at the same time as cutting taxes (now that was a change in methodology to get irate about). Or did you think everybody forgot about all that ancient history? So please spare me the lecture on critical thinking and commentary....
Ahhh, Martol... well at least now you are speaking a little more intelligibly.
You say GDP Calculation changes - frequently - Well now I would suggest that this administration has done it more frequently than I would like. The last revision was as the article says in 2013. TO be honest there was a better justification for the 2013 as it was to bring the USA in line with the 2008 International changes.
Now as far as WMD's and Trillion dollars... To get the economy to be in 'much better shape' as you call it, the Government has averaged under this Administration, almost $1 Trillion in debt per year ( versus the 1 Trillion in 8 years you are upset about ).
This is just to point out your hypocrisy, the $1 Trillion in debt that you are worried about still went into the economy, just the same as the averaged $978 Billion per year to get the economy running like it is.
Lastly, I thought it was a mistake on the Bush administration then, just as I disagree with the idea of the deficit being used to 'fix' the economy now. I did not like what the Bush administration did in spending ( I did like the tax cuts ) and if you would like we can get into why I prefer to do tax cuts as opposed to increased Government spending if you would like to get into that.
I also agree that the way the Administration ( Bush ) did the financing for the war was underhanded and should not have been done the way it was. They did this to get better numbers from the CBO. Just as I dislike the methodology that the Obama Administration has used with the CBO in order to make the ACA look better than it is going to ultimately look ( Another half trillion dollars over 10 years that is hidden from the ACTUAL budget numbers ) - again according to you something to be upset about.
Look I get upset when either side is playing games with numbers because they are not held accountable to them. You on the other hand are attempting to demonize one side. I am a member of the TEA Party. You do realize that the TEA Party was established as much because of Bush spending too much as it was against foolish policies that would increase tax burden on future generation right?
Or based on your disparaging remarks you are repeating what you have heard others on the left demonize said movement about. I have met those that are ignorant in the TEA Party movement and who are mad 'now' but more often I meet people like yourself who instead of USING Critical thought and analysis have an axe to grind and are so terribly partisan. being partisan is fine if you can explain yourself... Then it is just a point of view.
I have a point of view, I am more than happy to explain and discuss it with others. I can explain why I dislike things, such as the above article, for purely economic reasons. I see it creating a malformation of credit, I see the revision as causing additional market distortion, and a slew of other problems with the methodology now being introduced in this latest round of revisions.
Please feel free to talk to me about these things I am happy to explain myself, the methodology as I see it and why I see you as a HUGE hypocrite. Especially based on your last comment.
I don't have the time or inclination to correct low information based factual errors or the impression that I am some the hypocrite here. The tea party is fundamentally funded by a few economic and cultural fascists who just can't stand progressives trying to make the world a better place. It should be obvious increasing the national debt to fund infrastructure improvements while getting the economy moving is far different than the unconscionable waste of lives and resources that was the recent Middle East wars.
According to the Merriam-Webster definition, fascism is “a political philosophy, movement, or regime (as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition.”
Sounds a lot like liberal-progressivism doesn't it? That's because, absent the nationalistic fervor, it is. Fascism, at its core, is statism and places the needs and priorities of the state over the individual. Conservatives and Tea Party activists are anti-statism, unlike Democrats.
Comment is just another example of how the language and terminology has been completely perverted and rewritten over the 20th century. Soon, Webster won't even list the true definition. It'll sound a lot like what you just wrote.
Time to rise and shine.
Hey missed your missive.... In fact you seemed to have missed the adjective cultural to the noun fascism... Regardless, here the full M-W definition:
1: often capitalized : a political philosophy, movement, or regime (as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition
2: a tendency toward or actual exercise of strong autocratic or dictatorial control
So I say no, fascism does not sound at all liberal-progressive, but you do sound like quite the accomplished sophist.
Wow.. Pot, Kettle... Black... I am done if that is what you are going for. If you think that people who 'fund' something has anything to do with the BASE of what it was created for then you have serious issues. I can point to horrible people on 'the left' who were progressives that believed in things like Eugenics. Seriously you have no capacity for honest conversation OR based on the last comment critical thought.
First I honestly believe Progressives are 'trying' to make the world a better place. They are mistaken in what they are attempting to accomplish does not align with what they are attempting to do. Conservatives are trying to make the world a better place as well. No one goes out of their way and attempts to make the world a worse place. The very fact that you think otherwise again goes to either your ignorance or hypocrisy I do not know which one it is. Are you willingly blind or unknowingly blind?
Now I am willing to say there are many hypocrites on the right as well.
'Time or Inclination' think about that. You are commenting and saying I in broad strokes am wrong. But you do not have time to correct it. Yet you are on these comment boards making rude comments on how others are incorrect WITH NO FACTUAL BASIS IN ARGUMENT. Seriously you just managed with that sentence to show once again that you DO NOT KNOW WHAT YOU ARE TALKING ABOUT.
Thank you for attempting to engage in intelligent conversation for a brief moment however I now can see you for what you are.
"It should be obvious increasing the national debt to fund infrastructure to get the economy moving is far different than unconscionable waste of lives and resources that was the recent Middle East Wars."
Okay, how is it obvious? That people died in the middle east? People were dying over there to begin with and there was a chance ( that I actually believe that this administration managed to waste because they wanted the investment to fail ) that we could have helped bring Iraq to look more like Turkey and decreased violence in the entire region and save countless lives.
You talk about lives. Are you speaking ONLY of american lives? Do you not see that lives everywhere matter? Talking about lives do unborn people count? Or only those that have a voice? Are you speaking of the lives of women who are little better than slaves in the Middle east? should we fight for them, or leave cultures alone to do with women as they wish? You see these are all question I ask. I do not know that there is ONE answer. Should we allow people in the USA to practice Polygamy? Should women be chattel here as well for those cultures because it is their religious belief?
Economically there is little difference on what you spend money on to 'stimulate' the economy. I was merely pointing out that the 'absurd' amount of deficit spending that Bush engaged in ( which I did not like ) was a tenth of what we started to spend each year ( on average ) under this administration for the 'war'.
You did not address this instead you said you did not like what it was spent on. You rationalize your belief without thinking through it and its implications. You do not question your belief. Nor do you think about the distortions in the market place that said Trillion a year in Infrastructure spending is going to cause.
Heck lets just get into how much money as a portion of GDP should Government spend per year in the first place? What is the appropriate level? But know... obviously YOU who rather than actually engage simply say, "If you are so stupid that you cannot see that death and destruction are 'bad' and anything other than that is 'good' so long as it agrees with my personal ideal then you are stupid and not worth my time"
Wow... Such... I guess Arrogance... Foolishness... and small minded thinking.
WTFE idiot...