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By Jason Stipp and Robert Johnson, CFA | 08-29-2012 11:30 AM

Second Half Looks Better for GDP

Despite a downward trend in GDP over the last two quarters, the number is less dire on a year-over-year basis and is poised to strengthen in the third and fourth quarters.

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Jason Stipp: I'm Jason Stipp for Morningstar.

We got the government's second read on second-quarter GDP this week. It was an upgrade, showing that second-quarter GDP rose faster than initially thought.

Here to offer his take on that report and put it into some context is Morningstar's Bob Johnson, our director of economic analysis.

Bob, thanks for joining me.

Bob Johnson: Great to be here.

Stipp: The number was revised up from 1.5% to 1.7%. It was an upgrade. What was responsible for that little bump that we saw when they did the second read of second-quarter GDP?

Johnson: I think the single biggest number in there was the consumer services business, which they originally thought grew at 1.9%; it actually ended up growing at 2.4%. That's the best reading on consumer services since 2006. In other words, we were still in the upswing of the economy [in 2006]. We hadn't even gone into the recession. That was the last time that we saw a services growth number that looked that good.

Stipp: So, one of your theses has been that when services does better that you might see less spending on some of the other retail spending [categories], on goods, for example. Did you see that trend playing through here?

Johnson: They ticked down the number for goods just a little bit, and this quarter was a slower automobiles quarter, especially for the consumer, not so much for business, but for the consumer it wasn't a great quarter for autos at all. So, typically when you have autos sell less well, people tend to go toward services.

The other thing that we've been talking about now for a couple of months here, Jason, is on the electronics side. We've gotten to a part of the cycle where people aren't buying as many computers, smartphones, and flat screen TVs [at the same] accelerating rate anymore. Those are all things that are imported, and also when those sales went down, obviously people went out to eat or something a little bit more. And I think that's part of what's behind some of the numbers.

Stipp: So the import-export then shifted favorably because of less importing of some of those goods?

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