inventories to be a big tailwind to growth near-term; corporate America is doing great with profits at a new record high
Real GDP growth in the second quarter of 2021 was revised up a hair to 6.6% at a seasonally-adjusted and annualized rate in the second estimate from the Bureau of Economic Analysis, from 6.5% in the advance or first estimate.
The minor revision to GDP reflects upward revisions to nonresidential fixed investment and exports, mostly offset by downward revisions to private inventory investment, residential fixed investment, state and local government spending, and imports. Lower imports means a larger share of domestic expenditures were spent on domestic economic activity.
For the forward outlook, the takeaway from the GDP revisions is that business inventories are way too low. The drop in private inventories subtracted 1.3 percentage points from real GDP in the second quarter of 2021 (it had been -1.1 percentage point in the first estimate) after subtracting 2.6 percentage points from real GDP in the first quarter.
It is hard to overstate how screwed up global supply chains are. Delivery delays and shortages have made it extremely difficult for businesses to maintain inventories and prevented an even faster economic rebound. The economy will get a big tailwind from inventory restocking in the second half of 2021 which will sustain very rapid economic growth.
The second estimate of real GDP contains the first release of corporate profits for the second quarter. They rose 9.2% on the quarter (not annualized) to an annualized level of $2.786 trillion, and were equivalent to 12.3% of GDP in the quarter, up from 11.6% in the first quarter, 10.7% of GDP in 2020, and 11.1% in 2019. Corporate profits have bounced back rapidly from the recession and reached a new all-time high, supported by stimulus programs, the rapid resumption of economic activity, and the weaker dollar which raises the dollar value of profits earned in foreign economies.
Corporate America is doing great. Rapid corporate profit growth and very low-interest rates have supported the stock market’s rise to record highs.
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