"The key issue is the extent to which the enhanced levels of construction data in the second quarter GDP report were merely a reflection of stimulus as opposed to sustainable recovery." —ABC Chief Economist Anirban Basu.
Despite the nation’s sluggish economy, nonresidential fixed investment jumped 17 percent in the second quarter of 2010 following a revised 7.8 percent increase in the first quarter, according to the U.S. Commerce Department’s July 30 gross domestic product (GDP) report. Fixed investment in nonresidential structures increased 5.2 percent in the second quarter following seven straight quarters of losses. Fixed investment in nonresidential equipment and software spiked up 21.9 percent following a 20.4 percent increase in the first quarter of the year.
Residential fixed investment increased 27.9 percent in the second quarter following a 12.3 percent decrease in the first quarter. Total exports increased 10.3 percent in the second quarter as exports of goods increased 2.3 percent and exports of services increased 28.8 percent. Total imports increased 28.8 percent last quarter as imports of goods increased 35.4 percent and imports of services increased 1.6 percent.2
Personal consumption expenditures increased for the fourth straight quarter, up 1.6 percent. In addition, personal consumption expenditures of goods were up 3.4 percent and services were up 0.8 percent. The change in real private inventories added 1.1 percentage points to the second quarter change in real GDP following an addition of 2.6 percentage points to the first quarter change. Final sales, GDP less private inventories, grew by 1.3 percent in the second quarter. Federal government spending expanded by 9.2 percent while nondefense spending grew by 13 percent and defense spending grew by 7.4 percent. State and local spending grew by 1.3 percent in the second quarter, the first increase since the third quarter of 2008.
Gross domestic purchases continue to increase, up 5.1 percent in the second quarter. Overall, real gross domestic product, meaning the output of goods and services produced by labor and property located in the U.S., grew 2.4 percent in the second quarter following a revised 3.7 percent increase in the first quarter and 5 percent increase in the fourth quarter of 2010.
Analysis
“On its face, today’s GDP report appears somewhat disappointing," said Associated Builders and Contractors Chief Economist Anirban Basu. "Many economists had been predicting 3 percent growth or more for the second quarter. The immediate response of financial markets was somewhat negative to the news since it confirmed that the economy is hobbling into the third quarter.
“However, from the perspective of construction activity, the news is quite good and is a reflection of both economic recovery and the impact of various stimulus programs," Basu said. "The key issue is the extent to which the enhanced levels of construction data in the second quarter GDP report were merely a reflection of stimulus as opposed to sustainable recovery.
“There is reason to believe that in the nonresidential construction industry, the emergence of activity will continue for at least another quarter or two. In contrast, residential construction data indicate that activity is likely to remain unusually subdued," said Basu.
“The nation’s economic growth would have been much better during the second quarter had there not been a surge in imports," Basu said. "An increase in imports subtracts from the calculation of GDP.
“One can view the rapid growth in imports, and therefore the trade deficit, in at least two ways. The first is to focus on America’s growing dependence on a sea of products ranging from apparel and textiles to energy and computers. The other way of looking at the import data is to recognize that America’s economy is performing at a higher level than many other developed nations, and therefore buying power is relatively greater. Moreover, the growth in imports may be a sign that American business is purchasing intermediate good in large volumes, foreshadowing future increases in final production.