5 Things the U.S. GDP Report May Tell Us About What's Next

The U.S. economy likely expanded at a faster pace than initially thought in the second quarter. Economists surveyed by The Wall Street Journal are forecasting a 3.3% seasonally adjusted annual rate of growth from April to June, up a full percentage point from the initially reported 2.3%. Here are some things Thursday’s Commerce Department report may (and may not) tell us about what’s happening now.

#1: Taking Stock

It’s hard to get excited about inventories, but they may play an outsize role in second-quarter revisions and have significant implications for third-quarter economic growth. Commerce initially reported the change in real private inventories subtracted from GDP, but now economists expect a significant and possibly unsustainable boost. That could mean inventories will be a drag in the current quarter.

#2: All Sales Final

Real final sales—GDP minus change in private inventories—may offer a better picture of underlying growth. The figure basically measures how much American-made stuff people and companies bought at home and abroad. If we see 3.3% growth but that’s because of unexpectedly large inventories, look for downward revisions for the third quarter. If real final sales are in line with expectations, third-quarter growth forecasts should hold up: Barclays is tracking 2.8%, Macroeconomic Advisers 2.4% and Morgan Stanley 2%.

#3: Building Up

April and May construction data has been revised up since Commerce’s first take on GDP and reached the highest level in seven years in June. A solid housing market and demand for new homes—both single- and multifamily—would help underpin an economic expansion buffeted by uncertainty emanating from overseas.

#4: Selling Out

The Commerce Department initially reported a 2.9% rise in consumer spending during the second quarter. Retail sales figures used to calculate GDP have since been revised up, offering another possible boost and a potential sign of momentum for the economy. Consumer spending accounts for about two-thirds of economic output in the U.S.

#5: Global Market Morass

Of course, Thursday’s GDP numbers largely offer a look in the rearview mirror, detailing a three-month stretch that ended in June. Since, concerns about China have buffeted global markets, boosted the U.S. dollar and introduced greater uncertainty into forecasts for the U.S. economy.