2Q2011 Gross Domestic Product: First Estimate

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The Bureau of Economic Analysis (BEA) estimated 2Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 1.3 percent, up from a downwardly revised rate of 0.4 percent in 1Q2011. Private domestic investment (PDI) and net exports (NetX) contributed virtually all of the growth while government consumption expenditures (GCE) subtracted from it. Personal consumption expenditures (PCE) were a essentially a “wash.”
 

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The BEA revised data back to 2003; the magnitude of some of those changes can be seen by comparing the top graph in this post against this. At least part of the reason why 1Q2011 GDP growth was revised so much lower stemmed from the fact that the GDP deflator (which removes the influence of price changes from nominal GDP) was bumped higher than previously estimated (from an annualized quarter-to-quarter change of 1.9 percent to 2.7 percent). As the chart below indicates, the disparity between the 1Q2011 GDP deflator and producer price index (PPI) is still quite large, but less so than before. For more information on this topic and the derivation of the chart below, please click here.
 

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Quite frankly, we find the latest GDP report to be rather mystifying. In particular, if -- as the Federal Reserve acknowledged -- the economy slowed between 1Q and 2Q2011, how can GDP growth have increased?