Why the Dow is Surging Today

Today I want to talk about what may be the most important three-letter acronym when it comes to the U.S. economic recovery: GDP, which stands for Gross Domestic Product.

GDP is the broadest measure of a nation’s economic activity—adding up the total value of all goods and services produced in the U.S. This influential status update on the U.S. economy takes into account net exports, government spending, consumption, investment and inventory. Of course, out of these, the most important component is consumption, which accounts for about two-seconds of GDP.

The latest report is the second estimate for second-quarter GDP—which measures the U.S. economy’s progress over the second quarter. Because this is such an important report, the Commerce Department officially revises each quarter’s GDP estimates a total of four times: three during the quarter (advance, preliminary and final), as well as a final time once a year in July when the annual benchmark revisions are announced.

What had the newswires buzzing this morning is that the U.S. economy grew at an annual rate of 3.7% in the second quarter. This revised number is significantly higher than the advance estimate of 2.3% annual growth. And it’s lightyears ahead of the 0.6% pace from the first quarter, when harsh winter weather and disruptions at West Coast ports weighed on growth.

Several components contributed to the upward revision. Consumer spending—which is the largest contributor to economic growth—climbed 3.1%, higher than previously estimated 2.9% pace. Government spending also advanced 2.6%. Businesses also stockpiled and invested more than expected during the second quarter. Home construction spending surged 7.8%, compared with the previous reading of 6.6% growth.

The bottom line is that the economic recovery is gaining steam. And, judging from the latest retail sales data from July, American consumerism will likely continue to prop up economic growth in the third quarter.


Louis Navellier

Louis Navellier

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