The past week also saw the release of the Third Estimate for 2nd quarter GDP from the BEA and, unlike many other such revised estimates we've seen, there was little change this time.  The headlines read that the economy grew at a seasonally adjusted 2.5 percent annual rate in the spring quarter, unchanged from the previous report, but it was in fact fractionally less, at a 2.48% rate vs the 2.52% growth rate that the 2nd estimate yielded when computed to two decimal places. Nominal GDP rose from the $16,535.3 billion seasonally adjusted and annualized figure reported in the first quarter to an annualized $16,661.0 billion with this final revision, which gives us a current dollar annual growth rate of 3.07%, while the 2nd quarter GDP in chained 2009 dollars, on which the 2.48% growth rate and all other percentages in this report are based, rose $95.8 billion to $15,679.7 billion from the 1st quarter's $15,583.9 billion.  Oon a year over year basis, GDP has increased $252.0 billion in chained 2009 dollars, which gives us an anemic 1.63% growth rate for the 12 months ending June...

Since this third estimate didn't show much change from the 2nd estimate of 2nd quarter GDP, which we covered quite thoroughly a month ago, we'll just briefly highlight what changed in last week's release.  Personal consumption expenditures at an annual rate of $11,427.1 trillion were up 1.8% from the first quarter and virtually unchanged from the 2nd estimate; they accounted for exactly half of the growth in the second quarter.  Spending on durable goods was up at a 6.2% rate, a bit more than the 6.1% rate of increase indicated in the last report, while the increase in spending on non-durable goods was 0.2%, less than reported last month at 1.6%, while personal outlays for services increased at a 1.2% annual rate, up from the 1.1% rate of increase reported in the 2nd estimate.   Spending on durables added .46% to the 2.48% annual rate of increase for the quarter, while spending on non-durables contributed .26% to GDP and spending for services added .53%...

Fixed private investment was up at a 6.5% annual rate, somewhat more than the 6.0% rate of increase reported last month non-residential investment increased at a 4.7% rate, as investment in private structures increased 17.6% from the first quarter, a jump from the 16.1% increase approximated by the 2nd estimate; investment in equipment increased at a 3.3% annual rate, revised from 2.9%, and investment in intellectual property fell 1.5%, a greater contraction than the 0.9% reported by the 2nd reading.  Meanwhile, investment in residential property was up at a 14.2% annual rate from the first quarter to the second, more than the 12.9% rate of increase estimated at the end of August..  As a result of these changes, growth in non-residential structures now contributed .45% to 2nd quarter growth, while residential added .40%, equipment added .18% and intellectual property subtracted .06% from 2nd quarter GDP.

One larger change between the 2nd and 3rd estimate was a downward revision to inventory investment, most of which was a downward revisions to retail trade industries...reported last month as a $85 billion increase in inventories from the 1st quarter to the 2nd, that's now been revised to a $77.2 billion QoQ rate of increase, which is even lower than the 1st estimate, which came in at $78.7 billion. The result was that inventories contributed .41% annualized to 2nd quarter GDP growth, not the .55% approximated last month..

2nd quarter export growth was also a little weaker than the 2nd estimate indicated, as it also trended back to the levels reported in the 1st estimate.  Real exports of goods and services were reported to have increased at an annualized 8.6% rate in the second estimate, but in this 3rd estimate it's now indicated as growing at a 8.0% rate. The rate of increase in 2nd quarter imports was also written down a bit, from 7.0% in the 2nd estimate to 6.9% in this report.  As a result of these changes, the growth in imports, which subtracted 1.10% from the change in 2nd quarter GDP, was greater than the 1.04% contribution to GDP added by exports...

The change indicated in the contribution from state and local governments to 2nd quarter GDP by the 3rd estimate was also closer to the 1st estimate than the 2nd; instead of decreasing at a 0.5% rate as was reported at the end of August, investment and consumption spending by state and and local governments rose at a 0.4% rate in the 2nd quarter, just a fraction more than the 0.3% increase indicated from that government sector by the advance estimate of 2nd quarter GDP released in July.  Meanwhile, federal outlays decreased at a 1.6% rate in the 2nd quarter, which was the same decrease in federal spending reported in the second estimate. So while state and local governments finally made a small .05% contribution to GDP, the decrease in federal outlays took .12% away from GDP growth, leaving government as a drag on the 2nd quarter, much as it has been throughout this recovery…

The zero hedge bar graph above is a visual representation of how each of these major GDP components have impacted the quarterly result since the 2nd quarter of 2011, with the net quarterly change in GDP at an annual rate tracked by a black line; additionally, the pinkish shaded box includes a similar visualization of the differences between the first, second and third estimates for the 2nd quarter.  If you click to enlarge it, you’ll see that the dark blue in each bar represents the increase in personal consumption expenditures for each quarter,  the red in each bar represents the change in fixed investment for that quarter, while the change in private inventories, the other investment category, is shown in green, with additions to GDP above the red dashed “0.00%” line and subtractions, representing a component that had contracted during the quarter, below it.  In addition, the change in exports, which adds GDP when its growing and subtracts when it contracts, is shown in purple, while the opposite is true for a positive change in imports, shown in teal blue; they subtract from GDP when growing while a shrinkage of imports would be an addition to GDP and be shown above the red ‘0’ line.  Lastly, in orange, the graph shows the change in government consumption and investment, which has subtracted from GDP for every recovery quarter shown except for Q2 & Q3 of 2012.  Clearly, it’s been consumers in blue and fixed investment in red that have provided the most consistent growth over the last two years..

In addition to data on GDP and its components, this report included revised estimates of 2nd quarter inflation based on prices changes in national income & product accounts.   The GDP deflator, which is used to convert nominal GDP changes into real dollars and hence is the broadest measure of inflation, increased at an annual rate of just 0.6% in the 2nd quarter.  Meanwhile, the deflator for personal consumption expenditures, which the Fed has targeted at 2.5%, has now actually fallen at a annual rate of 0.1% in the 2nd quarter, rather than unchanged as previously reported (it might be more appropriate to call it a PCE inflator). The deflator for goods indicated 3.3% goods deflation at an annual rate in the 2nd quarter, and hence it raised their value by that much in the GDP computation, while the deflator for services indicated an annual inflation rate of 1.6% for services, and hence lowered their contribution to GDP by that percentage..

(cross posted from MarketWatch 666)