Q2 GDP Growth Pegged at 1.7%, Bank Profits Drop

The U.S. economy grew in the second quarter at 1.7 percent, slightly faster than the originally estimated 1.5 percent, the ""Bureau of Economic Analysis"":http://www.bea.gov/ reported Wednesday.

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At the same time, BEA reported the second quarter grew at a meager 0.5 percent from the first quarter, but an improvement from the 2.7 percent drop in corporate profits registered in the first quarter. Profits in the financial sector though fell more than 9 percent.

The upward revision in second quarter GDP growth was in line with the forecast by economists surveyed by Bloomberg.

The improvement in total profits â€" though modest -- could be a key driver in labor markets. The drop in profits in the first quarter coincided with weak employment reports. Businesses often use profit per employee as a metric.

BEA reported domestic financial corporations made $389.7 billion in the second quarter, a drop of $39.2 billion from the first quarter, but more than the $12.3 billion decline in profits from the fourth quarter of 2011 to the first quarter of this year. Non-financial corporations made $1.1 trillion, an increase of $30.4 billion from the first quarter and more than four times the $7.3 billion in profit growth from the fourth quarter of last year to the first quarter of 2012.

The revised estimate of the second-quarter percent change in GDP, BEA said, primarily reflected a downward revision to imports and upward revisions to personal consumption expenditures, to exports, and to state and local government spending that were partly offset by downward revisions to private inventory investment and to nonresidential fixed investment.

Even with the improvement, the growth pace is below the 3.0 percent level needed to add jobs to make a dent in the nation's unemployment rate. The GDP report covered the same quarter, which saw the weakest job growth â€" 225,000 jobs â€" since the third quarter of 2010 when the economy grew at a relatively robust 2.5 percent.

In dollars, GDP increased $58.1 billion in the second quarter, down from the $65.4 billion increase in the first. Most of the second quarter increase was due to a $40.1 billion gain in personal spending, also down from the first quarter when personal spending grew $57.5 billion.

Residential fixed investment added $7.6 billion to the economy in the second quarter, a sharp drop from the $16.1 billion it contributed in the first quarter.

Government spending continued as a drag on the economy, subtracting $5.5 billion from overall GDP but less than the $19.0 billion subtraction in the first quarter. Most of the reduction in government spending - $5.1 billion â€" came at the state and local government levels. Government spending has fallen for eight straight quarters â€" dating back to the third quarter of 2010 - during which time GDP growth has averaged an anemic 1.9 percent. In the preceding four quarters (since third quarter 2009, just after the official end of the recession), GDP growth averaged 3.3 percent.

The slowdown in total growth was due to a combination of factors: real personal consumption grew at just 1.7 percent in the second quarter compared with 2.4 percent in the first, and non-residential fixed investment grew at 4.2 percent in the second quarter compared with 7.5 percent in the first. Residential fixed investment grew 8.9 percent in the second quarter after growing at 20.5 percent in the first.

Personal consumption represented 70.7 percent of total GDP in the second quarter compared with 71.1 percent in the first.

Inflation, according to the GDP price index, was 1.6 percent, down from 2.0 percent in the first quarter.

BEA issues three GDP reports for each quarter: an ""advance"" report one month after the quarter ends and revisions in each of the following months as more data are received.