Ed Dolan's Econ Blog

As Exports Soar, US Economy Closes in on Fed’s Targets

Revised data released today by the Bureau of Economic Analysis show that the US economy grew at a 4.6 percent annual rate in the second quarter of 2014, even faster than the 4.2 percent previously estimated. That was the most rapid quarterly growth since Q4 2010.

Much of the upward revision was due to the growth of exports, which also turned in their best performance in four years. The strong performance of the export sector is especially noteworthy in view of slow growth or recession in many US trading partners. The BEA also made an upward revision, but not as large, to the growth of imports.

As the following table shows, personal consumption expenditures also grew faster than previously reported, with durable goods accounting for more than half of total growth for that sector. Fixed investment was also significantly stronger than previously reported. The contribution to GDP growth from government consumption expenditures and gross investment was a little stronger than in the second estimate. All of the growth of the government sector came at the state and local levels. The contribution to growth from the federal level was negative, as it has been in 11 of the past 12 quarters.

Today’s report also included estimates for inflation, as measured by the national income and product accounts. The broadest measure of inflation, the GDP deflator, was unchanged at 2.1 percent and the rate of increase of the deflator for personal consumption expenditure (PCE) was unchanged at 2.3 percent.

The PCE deflator is especially significant because of its role in the decisions of the Federal Reserve. The Fed defines its dual policy targets as 2 percent inflation, as measured by the PCE deflator, and a range of 5.25 to 5.75 percent unemployment. The unemployment rate stood at 6.1 percent at the end of Q2. As the following “bullseye” chart shows, the economy is now closing in on the Fed’s targets. By midyear, performance of both indicators fell within the inner ring of plus or minus one percent of the targets.

On the whole, then, the economy performed well in the second quarter. Some of that good performance no doubt reflected a rebound from the very weak first quarter, which reflected the effects of unusually bad weather. Many analysts expect somewhat slower GDP growth in the second half of the year. Still, relatively robust performance of the labor market over the past three months suggest that the United States will turn in one of the strongest performances among advanced economies for 2014 as a whole.

2 Responses to “As Exports Soar, US Economy Closes in on Fed’s Targets”

rjsigmundSeptember 26th, 2014 at 6:35 pm

ok, Ed, you've confused me with what you said about the GDP deflator being revised…i have been calling the change in the price index for GDP, which i find in line 1 of table 4, the GDP deflator, and that shows 2.1%, same as it did in the 2nd estimate…that deflator works to reduce the current dollar GDP increase of 6.8% to 4.6% (rounded), and that same table shows the change in the price index for PCE as 2.3%, which agrees with you above..

since i've been reading these releases by the seat of my pants, maybe i'm looking at the wrong number…where do you find the GDP deflator in this release?