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U.S. Q2 GDP unrevised at 3.3% growth

By Greg Robb, MarketWatch
Last Update: 9:19 AM ET Sept. 29, 2005
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WASHINGTON (MarketWatch) - The U.S. economy was sailing along smoothly in the months before two hurricanes plowed into the Gulf Coast region, the Commerce Department said Thursday.





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Second quarter gross domestic product increased at a 3.3% annual rate, just down from a 3.8% growth rate in the first quarter. The estimate matches the government's previous estimate for second quarter growth. Read full government report.

The unchanged estimate for second quarter growth was in line with the forecasts of Wall Street economists according to a survey conducted by MarketWatch. See Economic Calendar.

The second revision to real gross domestic product in the April-June quarter found an upward revision to consumer spending offset by a larger trade deficit.

Core inflation was revised higher.

Corporate profits from current production were revised lower, rising 4.6%, or $59.3 billion, to $1.35 trillion annualized. Before-tax profits are up 32.6% year-on-year, while after-tax profits are up 31.6%.

The government provides three estimates for each quarter's growth, gaining accuracy as better and more complete information becomes available.

In the current quarter, which ends tomorrow, economists are expecting growth rates of about 3.5%. This is down from previous estimate of about 4.1% because of the two hurricanes that hit the Gulf Coast region. The figures will be released on October 28.

Going forward, economists from the National Association of Business Economics expect growth of 3.0% in the fourth quarter.

Growth in the April-June quarter was led by consumer spending, which increased 3.4%. Business investment expanded to 8.8% growth.

The trade gap added 1.1 percentage points to growth.

Exports increased 10.7%, while imports fell 1.1%.

Inventories subtracted 2.1 percentage points from growth in the second quarter. Inventories shrank by $1.7 billion in the second quarter after growing $58.2 billion in the first quarter and $50.1 billion in the final three months of 2004.

Inflation measures were revised slightly higher.

The core personal consumption expenditure price index - the Federal Reserve's preferred measure of consumer inflation -- increased at a revised 1.7% annual rate, up from 1.6% estimated last month.

The Federal Open Market Committee has raised interest rates eleven times in the past year and a half to keep a lid on inflation. Even in the wake of Hurricanes Katrina and Rita, the FOMC is expected to continue to raise short-term interest rates at a measured pace. See full story.

Government spending rose 2.5% in the second quarter, the strongest spending since the first quarter of 2004.

Investment in equipment and software grew 10.9% in the second quarter. Investment in business structures rose 2.7% after falling 2% in the first quarter.

Investment in residences rose 10.8% after a 9.5% gain in the first quarter.

In a separate report, the Labor Department said jobless claims fell sharply in the latest month.