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Home Publications Blogs CEPR Blog Economy Rebounds in Second Quarter Based on Inventories and Cars

Economy Rebounds in Second Quarter Based on Inventories and Cars

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Written by Dean Baker   
Wednesday, 30 July 2014 08:04

GDP grew at a 4.0 percent annual rate in the second quarter after shrinking at a 2.1 percent rate in the first quarter. Much of the shift was due to a considerably more rapid pace of inventory accumulation. Inventory changes which had subtracted 1.16 percentage points from first quarter growth added 1.66 percentage points to growth in the second quarter. New car sales added another 0.42 percentage points to growth, after adding just 0.13 percentage points in the first
quarter. Equipment investment, which grew at a 7.0 percent rate, added another 0.4 percentage points to growth for the quarter.

Another positive item in this report was continued slow growth in health care costs. After a reported drop in the first quarter, health care costs grew at a 2.6 percent annual rate. They stand just 3.0 percent above their year-ago level.

On the negative side, the trade deficit expanded again last quarter rising to an annual rate of $564.0 billion. It subtracted 0.61 percentage points from growth in the quarter.

While the 4.0 percent growth is a sharp turnaround, it was very much in line with expectations. It means that for the first half of the year, the economy the economy grew at less than a 1.0 percent annual rate. The economy will have to sustain a growth rate of more than 3.0 percent over the second half of the year just to reach 2.0 percent growth for the year as a whole. This means 2014 will likely be another disappointing year for growth.

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