US GDP Growth Revised Up in Second Quarter

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WASHINGTON—Economic growth was stronger during the second quarter than earlier estimated, although growth in a key measure of U.S. corporate profits moderated from the first quarter.

Gross domestic product—the value of all goods and services produced across the economy—rose at a 4.2% annual rate in the second quarter, adjusted for seasonality and inflation, the Commerce Department said Wednesday.

The agency had earlier estimated second-quarter growth at a 4.1% annual rate. Economists surveyed by The Wall Street Journal expected an unchanged reading of 4.1% on Wednesday.

The second-quarter growth rate’s revision partly reflected stronger business investment than earlier forecast and a slight downward revision to consumer spending. The 4.2% rate still marked the strongest pace of growth in nearly four years.

That followed a growth rate of 2.2% in the first quarter. Output expanded 2.9% in the second quarter compared with the same quarter a year earlier.

Growth in U.S. corporate profits moderated in the second quarter compared with the first, according to the government’s initial broad estimate of profits at U.S. companies in the second quarter.

After-tax corporate profits with inventory valuation and capital consumption adjustments, a measure of profits from production that quarter, rose 2.4% in the second quarter from the prior quarter after rising 8.2% in the first quarter. After-tax profits without inventory valuation and capital consumption adjustments rose a seasonally adjusted 3.7% from the prior quarter after rising 8.5% in the first quarter.

Compared with a year earlier, profits with inventory valuation and capital consumption adjustments were significantly higher in the second quarter, up 16.1% on the year. That was the strongest year-over-year reading since the first quarter of 2012.

Tax legislation enacted last December appeared to give companies’ after-tax profits a boost in the first quarter, which eased in the second quarter. Among other changes, the tax overhaul slashed the corporate tax rate to 21% from 35% starting Jan. 1.

John Deere Commercial Products factory in Grovetown, Ga., produces machinery  in July.

John Deere Commercial Products factory in Grovetown, Ga., produces machinery in July.


Photo:

Michael Holahan/Associated Press

Overall, Wednesday’s report reinforced the view that the U.S. economy was strong in the second quarter, powered by robust consumer spending, strong exports and firm business investment.

Consumer spending accounts for more than two-thirds of total economic output, and Wednesday’s report showed Americans’ outlays grew robustly in the April to June period. Personal-consumption expenditures rose at a 3.8% annual rate in the second quarter, revised slightly from a previous estimate of 4.0% growth.

Business investment was solid in the second quarter, with fixed nonresidential investment rising at a 8.5% annual rate, up from an earlier estimate of 7.3%.

Revised data showed net exports added 1.17 percentage points from the quarter’s 4.2% GDP growth rate, compared with an earlier estimate of 1.06 percentage point.

Years of an improving labor market have given households more money to spend, and tax cuts put extra dollars in Americans’ pocketbooks through lower withholding.

That bodes well for economic growth in current quarter. Forecasting firm Macroeconomic Advisers on Tuesday projected GDP would expand at a 3.1% pace in the third quarter, now in its ninth week. The Federal Reserve Bank of Atlanta’s GDPNow model most recently predicted a 4.6% growth rate.

Since the second quarter, consumer sentiment has remained strong. The Conference Board said Tuesday its index of U.S. consumer confidence climbed to 133.4 in August from 127.9 in July, hitting its highest level since October 2000. The University of Michigan’s index of consumer sentiment has declined in four out of the last five monthly readings but remains at historically high levels.

The latest reading on GDP bolsters the likelihood that Federal Reserve officials will raise short-term interest rates at their next scheduled meeting in four weeks’ time, Sept. 25-26. Central bank officials have raised rates twice this year, to a range between 1.75% and 2%, and penciled in two more increases in 2018 and three in 2019.

“The economy is strong,” Federal Reserve Chairman

Jerome Powell

said in Jackson Hole, Wyo. last week, adding inflation “is near our 2% objective, and most people who want a job are finding one.”

Write to Harriet Torry at harriet.torry@wsj.com and Sharon Nunn at sharon.nunn@wsj.com

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