The broadest measurement of the overall economy is the gross domestic product (GDP). Economists and investors alike have grown to know that some 70% or so of GDP comes from consumer spending trends, but the reality is that GDP is the total value of U.S. production, which is made up of purchases of goods produced domestically and services. It tallies up the purchases made by individuals, businesses, foreigners and government entities here in the United States.
Thursday’s barrage of economic reports included the U.S. Department of Commerce’s final revision for the second-quarter GDP reading. This now has a very far look-back and will not be a market mover, but the trend was slightly better.
The headline data for real GDP was up 1.4% for the second quarter of 2016. As far as why such a low number is good, the prior reading was just at a rate of 1.1% for the revision. Bloomberg was expecting the revision to rise to 1.3% for the second quarter.
Then there is the GDP price index, which measures prices inside of GDP. This remained static at 2.3%. What matters here is that the Federal Reserve has been looking for prices to rise in a hopeful range of 2.0% to 2.5%.
Nonresidential fixed investment was one of the driving forces behind the higher revised reading for the second-quarter GDP. Overall trends were higher for a 1.0% gain, versus a decline of 0.9% in the prior report.
Residential investment was unchanged at a very negative −7.7%, and this made a −0.3% overall GDP reading contribution.
Consumer spending rose by 4.3% in the second quarter on an annualized basis, and it contributed a gain of 2.9 overall points on this reading. Final sales were revised up 0.2 points to 2.6%.
Exports were revised up 0.6 points to a gain of 1.8%, and this added 0.2 points on the total GDP reading. As a reminder, exports add to GDP while imports generally act as a negative.
What investors will need to keep in mind is that the second revision is roughly 90 days of look-back — or longer if you consider that it is the whole quarter rather than just the end of the quarter. Economic data since has been mixed as well.
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