Ignore the blips

US GDP gyrations obscure still slow, steady growth

Gyrations in the US gross domestic product obscure growth that's steady but still slow. Output rebounded strongly in the second quarter, with a four per cent annualized gain, after shrinking at a revised 2.1 per cent rate in the first quarter, according to a report released on Wednesday by the Bureau of Economic Analysis. With 2011-13 expansion smoothed and pared to two per cent on average, the underlying message - for everything from the economy to jobs and inflation - remains one of tame upward drift.

The latest number was encouraging, though a renewed upswing in inventories accounted for a full 1.7 percentage points of the total gain. Strip out inventories and government spending for the first two quarters of 2014, and the private sector has grown at a mere 0.8 per cent annual rate this year.

Consumers have done their part, however. Real final sales of domestic product increased at a 2.3 per cent annual rate in the second quarter, while the savings rate rose 0.4 percentage point to a relatively healthy 5.1 per cent. Imports outpaced exports, though, dragging down growth and widening the gap in the balance of payments.

The so-called personal consumption expenditure deflator, which the Federal Reserve watches closely as one indicator of inflation, ticked up at a 2.3 per cent annual rate, above the central bank's two per cent target. That could be a sign of possible trouble ahead, and while prices have risen only modestly, it might prompt the Fed to accelerate any monetary tightening.

The BEA also announced changes to past years' data. It revised 2013 growth up 0.3 percentage point to 2.2 per cent, but lowered the number for the previous two years, indicating a slightly weaker trend of economic expansion.

The second-quarter report is only a first estimate, so it's too soon to draw any firm conclusions. Last quarter's first estimate was, after all, lowered a full three percentage points in the initial two revisions, then raised 0.8 point this month. Amidst all the noise, however, is a clear signal that the economy is ambling forward.