More Exports and Investment in 2nd Quarter GDP--Just What We NeededCommentary by Bob McTeer
November 03, 2014
The writer, Gore Vidal, is reported to have said that he didn’t have much to say but he had lots to add. He was referring to his penchant for editing, rewriting, and subsequent drafts of his original work. That applies to the third draft of the second quarter GDP numbers released yesterday. The growth rate was revised up from the second estimate of 4.2 percent to 4.6 percent, primarily because of higher estimates of nonresidential fixed investment and exports. That’s my kind of revision.
Exports and business fixed investment are the two categories of spending that we’ve long needed more of. We need a faster growing capital stock to boost lagging labor productivity, and we need more exports to improve our chronic trade and current account deficits.
Of course the robust growth reported for the second quarter is at least partially a bounce back from a weather-related negative 2.1 percent in the first quarter. Real investment was up 9.7 percent in the second quarter, compared with an increase of only 1.6 percent in the first quarter. Real exports were up 11.1 percent, compared to 9.2 percent.
We should not forget, however, that the headline number benefited from inventory accumulation that added 1.42 percentage points to the increase. Real final sales—real GDP minus inventories—increased only 3.2 percent, compared to a decrease of 1.0 percent in the first. We probably should dampen our exuberance by focusing on the 3.2 rather than the 4.6 number and by remembering that it was at least partly a bounce back from bad weather.