Second Quarter G.D.P. Revision Shows Strong Growth, But Future Weakness Seems Likely

Today's revision of Second Quarter G.D.P. growth was good news, but it doesn't seem likely to last.

Economy Heartbeat

The first revision of Gross Domestic Product for the second quarter showed the economy growing at a far better pace than initially believed:

The economy grew much more quickly last quarter than initially thought as businesses and consumers increased spending, the government said Thursday.

At 3.7 percent, the revised estimate for the annualized rate of economic expansion in the spring is more than a full percentage point higher than the initial reading of 2.3 percent reported by the Commerce Department in late July.

It provides further assurance that the American economy remains on an even keel, despite questions about whether the United States can skirt mounting economic turmoil in China and other emerging markets as well as a volatile stock market at home.

Much of the revision Thursday was powered by increased corporate spending. Business investment increased at a 3.2 percent annual rate in the second quarter, according to Commerce Department statisticians, compared with the initial estimate of a 0.6 percent decline.

Other tailwinds included a better trade picture, as net exports improved, and increased government spending, especially at the state and local level.

But companies also added to their stockpiles of goods, which could weigh on growth in the months ahead. Real private inventories increased at $121.1 billion pace in the second quarter, adding a little more than 0.2 percentage point to overall economic activity.

The upward adjustment was better than expected by economists on Wall Street, who predicted the revised growth rate would come in at 3.2 percent. This is the second estimate of economic growth for the second quarter; the third and final estimate will be released in late September.

“This was a very solid report and very much confirms our view that the U.S. economy is on a solid growth track,” said Nariman Behravesh, chief economist at IHS, a private research and forecasting firm in Lexington, Mass. “The good news is that there was strength in many parts of the economy, both in terms of consumer spending and business sector investment.”

Although the revision was certainly good news, investors are already turning their attention to fresher data to determine the economy’s course and whether the Federal Reserve will make its long-awaited move to raise interest rates in September or wait until later meetings, in part because markets remain on edge.

In a separate report Thursday, the Labor Department said initial claims for unemployment benefits fell by 6,000 last week to 271,000 — a level that suggests the labor market remains healthy.

A growth rate of 3.7%, assuming that it holds up and sees itself replicated later in the year, is certainly better than the rather anemic 2.3% we saw from the initial report last month. At that point, it was at least clear that the economy had rebounded from its small downturn at the start of the year, but other signs continue suggest that we may be looking at an anomaly in this report. The July Jobs Report released earlier this month, for example, showed the same good-but-not-great employment growth that we’ve been seeing for some time, suggesting that the third quarter may not be moving at the same pace as the second quarter seems to have been. A primary reason for that is the fact that today’s GDP figure suggests that businesses spent much of the second quarter building up inventory. That’s typically not something that carries over from one quarter to another, though we’ll likely see some additional inventory growth in the third quarter as retailers get ready for Christmas. Additionally, factors outside the United States could end up having an domestic impact that leads to slower economic growth. While Monday’s stock market tumble has largely reversed itself over the past several days here in the United States, the underlying economic issues in China still remain and the world will continue to have to deal with them. It’s unlikely that a downturn in China will lead to a recession in the United States, but it will have some impact domestically, and that is likely to lead to slower growth heading into the rest of the year.

The most immediate relevance of today’s report, of course, will involve the issue of whether or not the Federal Reserve will increase interest rates. For months now, the board has been hinting that it would be making its first increase in more than six years at some point in the near future and many Wall Street observers expected it to come in September. This week’s events in the markets, though, along with the fact that the downturn in China is something that has been going on for months before it started having an impact on Wall Street, has led to at least some hints that the Fed may delay raising rates until it becomes clear what impact overseas events may have on the economy. Even in the face of today’s good news on GDP growth, this seems like a wise decision.

Beyond the immediate economic, of course, we’re once again entering the time when economic news such as this will start to become an important part of the ongoing Presidential race. Republican candidates have been making the argument that the economy under President Obama has been anemic and weak and that it has resulted in millions of Americans who have given up even looking for jobs while others are left to take lower paying jobs just to make ends meet. There is certainly plenty of evidence to back up this contention as even the most optimistic jobs reports show that real, long-term unemployment is still in double digits and that the percentage of people participating in the labor force is at levels not seen since the Carter Administration. A weak economy heading into the 2016 elections would certainly provide further evidence for that narrative, although in the end it’s been shown that most voters perceive the economy based upon how they are doing rather than what economic statistics happen to say. Notwithstanding that fact, though, if we head into the 2016 elections with a weak economy it could be rough sailing for Democrats.

FILED UNDER: 2016 Election, Economics and Business, US Politics, , , , , , , , , , ,
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. Bob @ Youngstown says:

    A pessimistic attitude always reaps its appropriate rewards.

  2. CrustyDem says:

    What possible motivation would the Fed have for raising interest rates? With minimal wage growth and inflation well below targets, I have no clue as to why it would even be considered…

  3. grumpy realist says:

    Except that the next POTUS gets a chance to pack the Supreme Court, I’d say the heck with it; dump the US into the Republicans’ laps and let them trash the place. How badly do we have to screw up before the average US citizen understands that the existence of the Laffer Curve does not automatically mean you can tax cut your way to success?

    At some point I want to see the socons get a brain and realize that unless you have jobs for people–which means taking on the free-market Ayn Rand types–you can talk until you’re blue about religion and morals and nobody will listen. If you can’t feed your kids, I really doubt you’re going to listen to a Natural Law argument about X.

  4. al-Ameda says:

    The stock market just fluctuated in a range of about 1,000 points, so I don’t think, in the absence of inflation, that the Federal Reserve is going to increase interest rates prior to 2016.

  5. Slugger says:

    Dr. Mataconis, I can’t make any money with such a vague prediction. The economy of the US has improved steadily over the last 200 years, but there have been up and down movements around the general trend line. Sometimes these moves have been quite sharp in what appears some crazy sort of fractal with lots of small moves for every large one. I can’t discern much of a pattern related to the presidential affiliation although during my lifetime (70 years) the only time we have had a inauguration to inauguration decline is under R’s with GWB being the prime example. Most of this was beyond Bush’s control, but I have a real sense that it was beyond his understanding as well.
    To quote Bill Clinton, “If you want to live like a Republican, you better vote for a Democrat.”

  6. Jc says:

    “Second Quarter G.D.P. Revision Shows Strong Growth, But Future Weakness Seems Likely”

    and then….

    “This was a very solid report and very much confirms our view that the U.S. economy is on a solid growth track,” said Nariman Behravesh, chief economist at IHS, a private research and forecasting firm in Lexington, Mass. ”

    Doug, you are such a glass half full guy on the economy. 🙂

    From Kiplingers:

    he economy is poised for solid growth in the second half of 2015. We expect U.S. GDP to grow at a rate

    of 3% to 3.5% over the final two quarters of the year, a healthy pickup from the 2.3% expansion in the second quarter. (Meanwhile, Uncle Sam revised first-quarter GDP growth this week, marking it at 0.6%, nearly a percentage point higher than was previously reported.)
    For the year as a whole, we look for GDP to grow at a 2.5% clip, up a tick from last year’s pace.

    Strong consumer spending is playing a big role in fueling the economic resurgence, along with a ramping up of construction activity, including home building. The housing market is in for a good year, propelled by a stronger job market and rising wages plus an increase in household formations and built-up demand.

    The economy so far this year is following last year’s script. The slow start in 2014, also largely resulting from harsh winter weather, was similarly followed by healthier gains in GDP in each of the three subsequent quarters.
    The biggest drag on U.S. growth going forward? Exports, which will continue to be hampered by the strong U.S. dollar, which makes U.S. goods and services pricier and less competitive in foreign markets. The prospect of a further slowdown in Europe, should Greece exit the eurozone, and the slower-growing economy in China won’t help much, either, on the export front.

  7. OzarkHillbilly says:

    Doug’s typical economic analysis of the economy under Obama: There was good news about the ___________ this week. Here’s why that was really terrible and things will definitely get worse and lead to an inevitable disaster:

  8. Ben Wolf says:

    @CrustyDem: Some at the Fed are now of the opinion that low interest rates have had the opposite of the intended effect. Some think low rates create “bubbles.” And some see this as the only tool left for potentially creating inflationary expectations a la “If the Fed raised rates then there must be inflation coming so let’s go buy things.”

  9. gVOR08 says:

    @Ben Wolf: Would that constitute a belief that there’s a lack-of-confidence fairy?

  10. stonetools says:

    Count me as one convinced that the Fed won’t raise interest rates this year. Yellen has said that any decision to raise rates would be “data driven” but and since then, the data has strongly favored the view that inflation is far off.

  11. stonetools says:


    Bingo. Doug’s other take would the “the economy is terrible and isn’t recovering as fast as earlier recoveries. ” My strong feeling is that Doug is never going to give the Obama administration credit for managing the economy to recovery after the worst economic crisis since the 1930s.

  12. Dave Schuler says:

    Actually, I think there’s room for a bit of guarded optimism. Increasing inventories + increasing orders is a good sign.

  13. JohnMcC says:

    I’ve noted with interest that state and local governments have begun to spend money after some five years of austerity; there are well publicized teacher shortages after many new teachers were axed back in 08 and 09, for example. I’m thinking that will help the present recovery resemble other returns from recession. Possibly on an over-all basis it will counter the decline in exports?

    One worrisome item has been the downturn in the world commodities market. A worldwide commodity glut preceded the Great Depression and it’s caused me some worry. There is a piece in this AM’s WaPo from Robert Samuelson (who I know is not to be confused with his pere) contending that this is partly because of the Chinese downturn and partly a normal oscillation in commodities. So I’ve had two items of cheerful nature on the economy today.

  14. anjin-san says:

    @ Doug

    With Obama in office, I think you should be buying gold, preparing for the coming collapse. You might want to get off the grid too, at some point the government will cut off your power.

  15. T says:


    You might want to get off the grid too

    so the idea of not paying huge money to some power conglomerate is some sort of anarchist-survivalist movement? please… look at what BMW and Tesla are doing with solar panels and battery technology for your house and for your car. This is real technology that realistically will help reduce our dependency on oil.

  16. gVOR08 says:


    Robert Samuelson (who I know is not to be confused with his pere)

    Not sure you weren’t being sarcastic, but just to be sure no one is confused, there is no relationship, nor any similarity, between Robert and Paul Samuelson. Paul Samuelson was a genius described as the “Father of Modern Economics” and “foremost academic economist of the 20th century”. He wrote the book, literally, Economics: An Introductory Analysis, four million copies of which were pretty much everyone’s Econ 101/102 text for decades.

    Robert Samuelson is a jumped up business reporter with a bachelors in government and no expertise in anything except self promotion, toward which any confusion with Paul was helpful.

  17. JohnMcC says:

    @gVOR08: Not sarcastic just totally misinformed. Thanx for straightening me out.

  18. Grewgills says:

    You need to get your snark detector recalibrated.

  19. DrDaveT says:

    Proper Bayesian analysis of the economy these days goes like this:

    Prior: “The economy is growing slowly and fitfully.”

    New data: this month’s report on [fill in the blank]

    Posterior: “The economy is growing slowly and fitfully.”

  20. anjin-san says:


    I have Solar City at one of our homes & we are planning on getting the battery setup and a Tesla. I was being snarky…

  21. Pinky says:

    @stonetools: Also, when the economic news is good, most of the commenters here praise President Obama, and when the economic news is bad, most of the commenters here blame the Republicans. Does this surprise you?

  22. Just 'nutha ig'rant cracker says:

    @Pinky: Okay, I give up; what have the Republicans done during the past 8 years that was good for the economy?

  23. Tyrell says:

    This report is not real clear. It does not reassure or predict. The people are worried, nervous, wary, and anxious. The feeling is one of “transition” and problems ahead. September and October look to be important.
    The candidates, and the news media continue their talk that is as diversionary as a Copperfield magic trick.
    “I see trouble on the way … I see bad times today …there’s a bad moon on the rise” (Credence Clearwater Revival)

  24. Ben Wolf says:

    @gVOR08: Yeah.

  25. Pinky says:

    @Just ‘nutha ig’rant cracker: Now, you see, that’s kind of sad. I don’t agree with your side’s arguments, but I know them. If you don’t know mine, how narrow must your perception be?

    In answer to your question, I’d say that most Republicans don’t think in terms of the government doing good for the economy, as much as not doing harm to it. Those Democratic agenda items that didn’t get passed in Congress were potential damage that was avoided, like the often-threatened bigger stimulus package. Congress discontinued the emergency unemployment insurance, as another example. There’ve been deficit-cutting budget deals over the past few years as well, and cuts to some of “Obamacare”. Again, I’m not asking you to think differently than you do, just to be aware that some people do think differently than you do.

  26. Pinky says:

    @Pinky: I should have added that a lot of Republicans would argue that most of the economic growth of the past few years has been in Republican states. I personally wouldn’t make that argument, because a great deal of that has been oil-related, but if I’m listing Republican analyses, I have to include it.

  27. anjin-san says:


    I’d say that most Republicans don’t think in terms of the government doing good for the economy, as much as not doing harm to it.

    Pretty much the philosophy of the GW Bush White House. No rules, just go make money. We all know how that worked out…

  28. gVOR08 says:

    There’s an old joke about a pessimistic farmer. Always complaining about something. One year everything came together, perfect weather, low prices for seed, fertilizer and fuel, record high crop prices. “Yup, them heavy crops sure take a lot out of the soil.” Something reminded me of that story.

  29. stonetools says:


    The point is not that your ideas are different. The point is that your conservative ideas are objectively WRONG.
    1.No, tax cuts aren’t self-financing, nor they do they fuel economic growth by themselves. That was tried in the USA 2001-2008 and in red states by Kansas and Louisiana 2008-2015. It doesn’t effing WORK.
    2. Not regulating financial markets because financial markets are efficient doesn’t work either ( See the 2008 financial crisis).

    3. No , austerity isn’t the right response to recession ( see the current consensus among economists worldwide). The current consensus among economists is that the 2009 fiscal stimulus DID work , and that more stimulus would have been better.
    These aren’t things that reasonable people might differ about. This is in the territory of gravity pulls, germs cause disease, and evolution happens. They are people who take a different view of those positions, but we don’t make policy based on their views. We tell them they are wrong, label them crackpots if they persist in their views, and move on.
    One of refreshing things about Obama’s approach to the Iran deal is that he didn’t talk about his opponents as being reasonable people who had a sincere difference of opinion, etc. He simply laid out the evidence, made rational arguments, and said bluntly that his opponents were wrong for rejecting the deal. I wish he had taken that approach earlier, with respect ton economic policy.

  30. grumpy realist says:

    @Tyrell: Geez, I’ve gotten better info from a tarot card reading….

  31. gVOR08 says:

    @stonetools: May I add that W Bush did an economic stimulus package. Fiscal stimulus, spending and running a deficit, were strong bipartisan consensus until we elected Obama. If you pay attention @Pinky: it’s obvious the GOPs aren’t shutting down spending based on economic analysis, but on a desire to deny Obama a win, even if it means burning down the country. Even as a Fed Chair appointed by Bush begged them to spend money.

  32. Pinky says:

    @stonetools: That’s hilarious. You responded to my comment by rebutting points I didn’t make, and not by accident, either: you enumerated them. Point 1: I didn’t say that. Point 2: I didn’t say that. Point 3: I said something a little like that, but not that. It’s funnier that you numbered them.

  33. Pinky says:

    @gVOR08: You’re wrong because (1) we know that socialism doesn’t work; (2) we have a Constitution for that, and (3) there’s such a thing as clean-burning coal.

  34. gVOR08 says:

    @Pinky: 1) Sweden, 2) what? 3) Umh, no there isn’t actually, 4) how does this address what I said? 5) Reynolds – are you doing Pinky now?

  35. Pinky says:

    @gVOR08: You missed the joke. I was riffing on Stone’s enumerated replies to things I didn’t say.

  36. Grewgills says:

    You suggested here that we should know what your positions are, presumably because they are republican boiler plate. Stonetools responded to republican boiler plate. If you want people to respond to your actual ideas perhaps you should state them rather than telling people to read the tea leaves to guess your ideas.