WASHINGTON – Real gross domestic product increased at a 2.4% annual rate in the second quarter of 2010, the smallest gain in three quarters, as a surge in imports and slowing inventory growth outweighed gains in real estate and state and local spending, the Commerce Department reported Friday.
Consumer spending, which accounts for about 70% of real GDP, increased 1.6% for the quarter ending on June 30.
Real GDP in the first quarter of 2010 was revised higher to 3.7% from 2.7% reported last month.
Today’s report included the Commerce Department’s baseline revisions to the GDP, revealing that economic contraction amid the recession was worse than previously estimated. From the fourth quarter of 2007 to the second quarter of 2009, real GDP decreased at a 2.8% annual rate, up from the 2.5% decrease previously reported. From 2006 to 2009, GDP decreased 0.2%, revised from a flat estimate previously reported.
Economists polled by Thomson Reuters expected second quarter real GDP to increase 2.5% annually, according to the median estimate.
Core personal consumption expenditures increased 1.1% for the quarter, in line with economists’ estimates. Core PCE was revised higher for the first quarter to a 1.2% rise from the 0.7% increase reported previously.
The second quarter total PCE edged higher by 0.1%, the smallest increase since the first quarter of 2009.
Imports, which subtract from GDP growth, soared 28.8% in the second quarter, the largest increase since 1984. As a result, imports subtracted 4.0 percentage points from real GDP, the largest subtraction on record. The net subtraction of imports and exports from the GDP was 2.78 percentage points, the largest since 1982. Exports increased 10.2% for the quarter.
Business inventory investment slowed for the quarter. The change in private inventories added 1.05 percentage points to GDP, the smallest addition in a year. Businesses had sharply reduced their investments amid the worst of the recession, but strong restocking contributed to GDP growth as the economy recovered.
Other areas of business investment picked up steam. Fixed investments increased 19.1% for the second quarter. Equipment and software purchases increased 21.9%.
Investments in buildings added to GDP growth for the first time in two years. Residential investment turned positive and contributed to GDP by the largest amount since 2004.
State and local spending increased 1.3%, adding to GDP growth for the first time in two years.
State and local governments were aided by federal stimulus spending, the report showed. In the second quarter, spending from the American Recovery and Reinvestment Act of 2009 funded about $102.5 billion in current grants to state and local governments.
The federal stimulus law also lowered personal taxes by about $120 billion.
