Today’s advanced estimate of GDP data from BEA is disappointing — but expected and not as bad as some feared. GDP in the 2nd quarter of 2010 (April – June) grew by only 2.4%. Consumer spending leveled off and imports grew. But the good news is that business investment grew. As the New York Times reports:
Nonresidential fixed investment, which covers items like office buildings and purchases of equipment and software, was a key driver of growth in the second quarter, rocketing up at an annual rate of 17 percent, compared with a 7.8 percent increase in the first. The equipment and software category alone grew at an annual rate of 21.9 percent, the fastest pace in 12 years.
The other big part of the story was the revisions to earlier numbers. Last month, BEA reported that 1Q GDP grew by 2.7% — compared to today’s revision that 1st quarter grew by 3.7%. That was the only quarter where the number was revised upward. For every other quarter starting in 2007, economic growth was either the same or revised downward (see chart in the Wall Street Journal). In other words, the economy preformed even worse than we thought.
These revisions are the result of new data becoming available. And should serve as a reminder that as good as our statistical system is, we still have a lot of work to do to improve the numbers (see earlier posting). And, that we should remember that the data always contains an element of uncertain and should be treated accordingly.