Economy Grew At 4.6% In Second Quarter

A strong rebound for the economy from the downturn at the start of the year.

Economy Heartbeat

The final revision to Second Quarter G.D.P. was released today, and it shows that the economy bounced back for the slowdown in the First Quarter that actually saw economic growth contract far stronger than originally reported:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 4.6 percent in the second quarter of 2014, according to the “third” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 4.2 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in exports were larger than previously estimated (for more information, see “Revisions” on page 3).

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Real GDP increased 4.6 percent in the second quarter, after decreasing 2.1 percent in the first. This upturn in the percent change in real GDP primarily reflected upturns in exports and in private inventory investment, accelerations in nonresidential fixed investment and in PCE, and upturns in state and local government spending and in residential fixed investment that were partly offset by an acceleration in imports.

As The New York Times reports, this strong performance by the economy has caused most analysts to revise their forecasts for the remainder of the year upward:

WASHINGTON — The U.S. economy’s bounce-back last quarter from a dismal winter was even faster than previously thought, a sign that growth will likely remain solid for rest of the year.

The economy as measured by gross domestic product grew at a 4.6 percent annual rate in the April-June quarter, the Commerce Department said Friday. It was the fastest pace in more than two years and higher than the government’s previous estimate of 4.2 percent.

The upward revision reflected stronger-than-expected business investment and exports last quarter.

The healthy second-quarter growth marked a sharp rebound from the January-March quarter, when the economy shrank at a 2.1 percent rate in the midst of a brutal winter that idled factories and kept consumers at home.

As the third quarter nears an end, economists envision a strengthening economy through the end of 2014 and into 2015. Many think the economy is growing in the current July-September quarter at a rate of around 3 percent.

Sal Guatieri, senior economist at BMO Capital Markets, is slightly more optimistic than most. He said a brighter outlook for business investment spending and other good economic reports had led him to revise his GDP forecast to 3.2 percent growth for the July-September period, up from 2.8 percent earlier.

“The American economy is firing on virtually all cylinders and cruising at a decidedly stronger rate than in recent years,” Guatieri said.

After the dismal performance of the economy in the First Quarter, this is certainly welcome news. More importantly, it’s a sign that the economy is likely in no danger of slipping into recession any time soon and that the recovery that began, according to traditional measurements, in early 2009 will continue to churn along, perhaps at a faster pace than it has for most of the past five years. The most important news out of today’s numbers is that the growth that occurred happened in areas that are likely to continue to grow in the the future. We’ve seen strong G.D.P. before, but they’ve ended up being temporary bounces based largely on something like increased Defense Department acquisitions at the end of a Fiscal Year or a buildup in business inventories, neither of which are generally seen by economists as the kind of sustainable growth that the economy needs for a number like this to be something other than a short upward bounce. In addition to business investment and exports, for example, there was also strong upward growth in final sales. There were also increases in consumer spending and personal income that are likely good signs going forward. Finally, a survey released in the wake of the G.D.P. numbers shows consumer sentiment at a 14 month high, which is good news for retailers heading into the Christmas shopping season.

We’ll get the first estimate of growth in the 3rd quarter at the end of October, but based on the employment figures from the past several months, which will be supplemented by the September Jobs Report next Friday, it looks like we’re in good shape.

The interesting question is whether numbers like this will have any impact on the midterm elections.  As is typically the case, the economy is likely to be a top concern of voters when the go to the polls, so good news about the economy would seem to be good news for incumbents on both sides of the aisle. As a general rule, though, it’s never really been the case that individual economic statistics have much of an impact on election returns. Instead, voters tend to vote based on their perceptions of the economy and their own economic experience, and in that respect there would seem to be bad news for Democrats wanting to hold on to the Senate. Recent polling shows that large numbers of voters still don’t believe that the economy has fully recovered from the Great Recession, that there is widespread anxiety over the state of the economy, and that the economy many never fully recover from the 2007 economic downturn. Other polling has showed that a large segment of the voting public still believes the economy is in recession, which is obviously not true if you look at the way a recession is defined by economists. Finally, President Obama’s job approval on the economy remains quite negative. Added together, that portends a voting public that will not be inclined toward Democrats in November regardless of what the economic statistics say.


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Doug Mataconis
About Doug Mataconis
Doug Mataconis held a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020. He passed far too young in July 2021.


  1. John D'Geek says:

    @Doug Mataconis:

    Other polling has showed that a large segment of the voting public still believes the economy is in recession, which is obviously not true if you look at the way a recession is defined by economists.

    That’s because the average citizen pays attention to real wages and real wages say “we’re still in a recession”. In this case, the formal marker doesn’t reflect the experiences of the average citizen.

  2. C. Clavin says:

    @John D’Geek:
    Well yeah…middle class wages have been flat for 30 years.
    We’re still waiting for the trickle down to trickle down.

  3. al-Ameda says:

    This is good news.
    Generally, we’ve had slow steady growth since the Great Recession of 2008-2009.

  4. ernieyeball says:

    Real gross domestic product — the output of goods and services produced by labor and property located in the United States-..

    January 17, 1961. The former Supreme Allied Commander of Europe and “Commander in Chief of the Army and Navy of the United States, and of the Militia of the several States,” spoke these words three days before he voluntarily and peacefully gave the keys to his office to a star crossed Congressman from Massachusetts.

    In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military–industrial complex.

    I had just turned 13. I don’t think I grasped what Eisenhower was saying at the time.

    Now that we are at war…again…in my lifetime (Korea was the first). It might be useful to understand how much of this 4.6% was due to Ike’s fears.

  5. humanoid.panda says:

    @ernieyeball: Since the the 2nd quarter ended in April, my guess would be that not much more than usual.

  6. humanoid.panda says:

    @humanoid.panda: And of course,in an economy the size of the US, the kind of action that is being pursued right now is not even a rounding error…

  7. ernieyeball says:

    @humanoid.panda…not much more than usual.

    So do you think President Eisenhower’s fears have materialized?

  8. humanoid.panda says:

    @ernieyeball: In some ways, yes, in some ways no. Are defense contractors a big, too big , influence in DC? Yes. Should the US spend less on guns and more on butter. Absolutely, and it will even benefit national security in long run (crumbling infrastacture and climate change are both strategic threats). Do I believe that arms manufacturers and such are tail that wagging the dog, leading the US to foreign adventurism? Not really. I mean, the MIC was at the peak of its powers in the 1980s and then was hacked to pieces in the 1990s. Its recovery in the aughts has to do with the rise of real threats (and unlike some on this forum, I do consider anarchy in the ME a real threat) and threat inflation. Is the MIC making profits of these phenomena? Yes. Is it a prime mover in developing them? Not so much.

  9. gVOR08 says:

    @humanoid.panda: I’ve always understood Eisenhower’s “military-industrial complex” to be not the industry supplying the military, but the combination of them with the military, to which I think we also have to add the intelligence community. My fear is not that the Daddy Warbucks of the world will wag the dog and drive us into war for profit, but that the whole incestuous complex which includes big parts of the “permanent government” will develop a groupthink mindset that will militate toward war. I believe there is ample evidence that this does happen. I would regard PNAC as having been part of the MIC and a prime example. (Admittedly also something of a counterexample in that it was partially driven by profit.)

    Unrelated, but you caused me to take a quick look at Eisenhower’s speech. It included:

    In this final relationship, the Congress and the Administration have, on most vital issues, cooperated well, to serve the national good rather than mere partisanship, and so have assured that the business of the Nation should go forward. So, my official relationship with the Congress ends in a feeling, on my part, of gratitude that we have been able to do so much together.

    Note that Eisenhower mostly faced Democratic Congresses. The times have changed, haven’t they.

  10. ernieyeball says:

    @humanoid.panda: Do I believe that arms manufacturers and such are tail that wagging the dog, leading the US to foreign adventurism? Not really.

    WikiP lists “2014 American intervention in Iraq” as the 15th war America has been involved in since I was born in January of 1948.
    Who can forget Operation Uphold Democracy in 1994 when the US along with allies Poland and Argentina toppled the Government of Haiti without firing a shot. (I did.)
    Seems to me that our fearless leaders don’t need much encouragement to go looking for dragons to slay.

  11. Guarneri says:

    The report is actually pedestrian. Certainly not bad, but not inspiring. For the last year just under half of GDP growth has been inventory build. Further, Q to Q swings have been dominated by build vs depletion. (see Q1) Inventory is where all sins get buried; put the goods in the warehouse and capitalize expenses into the balance sheet.

    The Q2 report benefitted from mandatory ObamaCare spending (interpret that as you want) and a revised profits and inventory measurement protocol. And the revised methodology did not have a negative impact. Heh.

    The real sliver of good news was business spending which finally showed signs of life. The question is whether this was deferred spend that could be deferred no longer. This spending is only relevant to the extent it leads to final consumer sales. Which brings me to the most worrisome part. Consumer spending was projected to advance 2.9% but wound up at 2.5%. For those of you playing at home, that’s a 15% miss for a key component.

    As I say, on balance it was kind of a putzy report. One wonders what will happen when winter hits and “severe weather” gets blamed for poor performance again. Who knows, it might even snow.

  12. george says:

    @C. Clavin:

    Well yeah…middle class wages have been flat for 30 years.
    We’re still waiting for the trickle down to trickle down.

    Definitely true about middle class wages. I doubt there’s much any president can do about that, or even about the economy. Presidents get credit for, and take blame for, economic results that are typically outside their control. Sometimes it seems to even outside their influence.

  13. Tyrell says:

    @John D’Geek: I agree with that and their inflation index is usually highly unreal. Just ask anyone who has been grocery shopping lately or buying common building supplies.My wages have been relatively flat for six years. Actually are lower when you take into account the rise in food prices. I hear it weekly when family members get back from the grocery store. I see it when I stop at the corner store for a snack and coffee. Too much month and not enough check.

  14. Guarneri says:

    Inflation in things like food is a relatively recent phenomenon. I think it’s part of QE, and you don’t hear Obama crying out against it.

    Anyway. Over the past 30 years food, computing, data search, electronics, personal communication, clothing……I could go on, have fallen dramatically. So purchasing power has increased the lot of the Average Joe markedly. Not to say wage growth is not desirable, but let’s consider the whole picture.

  15. Slugger says:

    Grocery prices, at least for beef, may reflect the 2012-13 drought in the Midwest rather than inflation. The good news is that we appear to be on track toward a huge bumper crop in the Midwest. Corn prices are down 30% compared to last year.
    Sometimes, no often times, I think that our leaders and economists know a whole lot less about the economy than they pretend. Economies have cycles, and the president during a down cycle gets a lot of blame while the lucky one during an upswing gets a lot of credit, and maybe this is all without merit. Thus we get the bad Carter, the good Reagan, the bad Bush I, the good Clinton, etc. In actual fact this is all the playing out of forces like Midwestern weather that we can’t control and other forces that we do not understand.
    The economy dropped in 2008; now it is rebounding. The idea that we are not really able to influence these changes seems more viable to me each day.

  16. anjin-san says:

    I’ve argued with Guarneri quite a bit over the years. That being said, not seeing what buys him a down vote on that last comment…

  17. PAUL HOOSON says:

    This is very good news. This is the best performance since LBJ, and even better than Reagan’s 3.9% peak GDP growth rate average during his second term, or Bill Clinton’s peak of 4.0% GDP growth rate. And it’s certainly far better than the terrible 0.5% GDP growth under Bush.

  18. Guarneri says:


    Reflexivity. Thanks for the observation but it’s OK, I am well aware that the general economics/ finance IQ around here hovers around 30.

    To throw gas on the fire, the St. Louis fed published a paper showing the return to labor vs capital of investment to be quite steady and overwhelmingly to labor over the past 40 years. The reason is that they had the basic brains to consider the obvious: that workers were also consumers.

    Everyone knows this intuitively if they would take their partisan blinders off. Wages are a measure per person. So are returns to capital. Have short term interest rates risen dramatically over the past 30 years? Returns to bank loans? To public or private equity? No. A bank WC loan still is priced at about 6-7% for example. Have the dollar returns to holders of capital increased? Of course.

  19. Guarneri says:

    Damned thing cut me off. Has Obama spoken out against QE and it’s penalization of savers seeking retirement type fixed income returns? No. Is he boasting about the stock market and it’s fed driven returns to capital holders? Yes. And can anyone imagine that a government redistribution program will enable the Average Joe to accumulate capital? I can’t.

  20. Tyrell says:

    @PAUL HOOSON: It is good news, especially that many people are at least keeping their jobs or finally getting one, such as bringing in grocery carts, selling vacuum cleaners door to door, or running the ferris wheel at town carnivals.