Inflation Index Higher than Fed's Target

123jump.com Staff
30 Nov, -0001
New York City

The economic expansion continued in the 2Q as consumer and government spending kept unabated. While economy grew at a slower pace than the previous quarter, core inflation index is running at a higher level than the Fed

The nation’s economy expanded in the second quarter at 3.4% rate slower rate than in the previous quarter and in the quarter a year ago. The government’s first read on the economy, which is often revised, shows healthy expansion supported by manufacturing, defense and government spending and housing sectors.

The government also revised the annual economic growth rates for the last three years downwards.


Latest read on 2Q GDP

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 3.4 percent in the second quarter of 2005, according to advance estimates released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.8 percent.

The major contributors to the increase in real GDP in the second quarter were personal consumption expenditures, exports, equipment and software, residential fixed investment, and government spending. The contribution of these components were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The deceleration in real GDP growth in the second quarter primarily reflected a downturn in private inventory investment that was partly offset by a downturn in imports and accelerations in exports and in equipment and software.

Final sales of computers contributed 0.43 percentage point to the second-quarter change in real GDP after contributing 0.37 percentage point to the first-quarter change. Motor vehicle output subtracted 0.08 percentage point from the second-quarter change in real GDP after contributing 0.15 percentage point to the first-quarter change.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.2 percent in the second quarter, compared with an increase of 2.9 percent in the first. Excluding food and energy prices, the price index for gross domestic purchases increased 2.0 percent in the second quarter, compared with an increase of 3.0 percent in the first.

Real personal consumption expenditures increased 3.3 percent in the second quarter, compared with an increase of 3.5 percent in the first. Durable goods purchases increased 8.3 percent, compared with an increase of 2.6 percent. Nondurable goods purchases increased 3.3 percent, compared with an increase of 5.3 percent. Services expenditures increased 2.3 percent, compared with an increase of 2.8 percent.

Real nonresidential fixed investment increased 9.0 percent in the second quarter, compared with an increase of 5.7 percent in the first. Nonresidential structures increased 3.1 percent, in contrast to a decrease of 2.0 percent. Equipment and software increased 11.0 percent, compared with an increase of 8.3 percent. Real residential fixed investment increased 9.8 percent, compared with an increase of 9.5 percent.

Real exports of goods and services increased 12.6 percent in the second quarter, compared with an increase of 7.5 percent in the first. Real imports of goods and services decreased 2.0 percent, in contrast to an increase of 7.4 percent.

Real federal government consumption expenditures and gross investment increased 1.3 percent in the second quarter, compared with an increase of 2.4 percent in the first. National defense increased 2.0 percent, compared with an increase of 3.0 percent. Nondefense decreased 0.1 percent, in contrast to an increase of 1.1 percent. Real state and local government consumption expenditures and gross investment increased 2.4 percent, compared with an increase of 1.6 percent.

The real change in private inventories subtracted 2.32 percentage points from the second-quarter change in real GDP after adding 0.29 percentage point to the first-quarter change. Private businesses reduced inventories $6.4 billion in the second quarter, following increases of $58.2 billion in the first quarter and $50.1 billion in the fourth.

Real final sales of domestic product -- GDP less change in private inventories -- increased 5.8 percent in the second quarter, compared with an increase of 3.5 percent in the first.

Gross domestic purchases

Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 1.7 percent in the second quarter, compared with an increase of 4.0 percent in the first.

Disposition of personal income

Current-dollar personal income increased $143.0 billion (5.8 percent) in the second quarter, compared with an increase of $64.4 billion (2.6 percent) in the first.

Personal current taxes increased $38.1 billion, compared with an increase of $79.7 billion. Disposable personal income increased $105.0 billion (4.8 percent) in the second quarter, in contrast to a decrease of $15.3 billion (0.7 percent) in the first. Real disposable personal income increased 1.4 percent, in contrast to a decrease of 2.9 percent.

Personal outlays increased $147.1 billion (6.8 percent) in the second quarter, compared with an increase of $129.6 billion (6.1 percent) in the first. Personal saving -- disposable personal income less personal outlays -- was $18.4 billion in the second quarter, compared with $60.5 billion in the first.

The personal saving rate -- saving as a percentage of disposable personal income -- decreased from 0.7 percent in the first quarter to 0.2 percent in the second.

Current-dollar GDP

Current-dollar GDP the market value of the nation's output of goods and services -- increased 5.9 percent, or $177.4 billion, in the second quarter to a level of $12,376.2 billion. In the first quarter, current-dollar GDP increased 7.0 percent, or $203.6 billion.

The report also revised the annual economic growth rated for the last three years downwards. For the year 2004 the rate was revised to 4.4% from 4.2%, in 2003 was revised to 2.7% from 3%, and in 2002 growth was revised to 1.6% from 1.9%.