On September 29, the U.S. Bureau of Economic Analysis (BEA) reported in its third estimate that the real U.S. gross domestic product (GDP) grew at an annual pace of 1.4% in the second quarter of 2016.
In the first quarter, the real U.S. GDP increased by 0.8%. (Source: “National Income and Product Accounts,” Bureau of Economic Analysis, September 29, 2016.)
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Investors and economists use GDP figures to assess the overall health of the U.S. economy. If the GDP rate declines, it means there’s economic slowdown; if it’s increasing, it suggests growth.
From a historical perspective, the annual growth rate of 1.4% isn’t anything stellar; the average annual real GDP growth rate for the U.S. economy has been around 3.2% since 1947. By this measure, the U.S. economy is severely underperforming. (Source: “Real Gross Domestic Product,” Federal Reserve Bank of St. Louis, last accessed September 29, 2016.)
The biggest factors for the increase in the GDP are personal consumption expenditures (PCE), exports, and nonresidential fixed investments. The biggest factors impacting the growth rate are private inventory investments, residential fixed investments, state and local government spending, and imports.
The current-dollar GDP increased by $168.5 billion, or 3.7%, in the second quarter of 2016 and amounted to $18.45 trillion. In the previous quarter, current-dollar GDP increased $58.8 billion, or 1.3%.
Looking at alternative measures of assessing economic activity, the real U.S. gross domestic income (GDI) declined by 0.2% in the second quarter. In the first quarter, GDI increased by 0.8%.
The GDI gauges the health of an economy based on income rather than expenditure. It essentially looks at income from all sectors of an economy, unlike GDP figures, which are calculated based on spending.
In its September economic projections, the Federal Reserve expected the U.S. real GDP to grow by 1.8% in 2016, two percent in 2017 and in 2018, and by another 1.8% in 2019. In the long term, the Fed estimates the U.S. real GDP to increase by 1.8%. (Source: “Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents under their individual assessments of projected appropriate monetary policy, September 2016,” Board of Governors of the Federal Reserve System, September 21, 2016.)
