U.S. Q2 Real GDP Growth Revised +4.0%, GDP Price Index +2.7%
In its initial revision to Q2 real GDP, the U.S. Commerce Department reported that the economy grew at a 4.0% q/q seasonally adjusted annual rate. This compared to an initial estimate of 3.4% growth and was in line with market expectations. The overall GDP chain-type price index was reported to have advanced at a 2.7% seasonally adjusted annual rate, which was identical to that originally released and also in line with market expectations.
As expected, the upward revision to growth in Q2 was due to a combination of factors, with the most important being 0.29pp more upside impetus from capital spending, 0.24pp more from net exports (a combination of higher exports and lower imports), and 0.14pp more from consumer spending. A partial offset was provided by a bigger decline in housing than first estimated. Real final sales growth (GDP less inventory change) was revised to 3.7% from an initial estimate of 3.2%, and domestic final sales growth (which also excludes the net export sector) was revised to a 2.2% pace from an initially reported 1.9%.
The big swings in inventories (-0.65pp contribution in Q1, +0.21pp contribution in Q2) and net exports (-0.51pp in Q1, +1.42pp in Q2), which proved so important to the improvement in overall growth in Q2, will not be replicated in Q3. Moreover, housing activity is going to weaken significantly further, and consumer spending is soggy. Real GDP growth in Q2 is thus likely to be well below that of Q3, with something on the order of 2.5% now looking to be a reasonable bet. A further slowdown is likely in Q4 as housing continues to bite and output growth slows in line with final demand. Our September U.S. Economic Chartbook and Forecast Update will be distributed next week, and, while we have not yet finalized our figures, it will definitely contain a significantly downgraded growth forecast and a revision in our Fed call to encompass near-term easing.
The overall GDP chain-type price index was unrevised, continuing to show a 2.7% q/q annualized rise in Q2, which followed gains of 4.2% in Q1 and 1.7% in Q4. The price index for core gross domestic purchases (GDP excluding food, energy, and the influence of net exports) was revised to show a 1.6% rate of increase, down from an initial estimate of 1.7%, and this followed increases of 3.1% in Q1 and 2.3% in Q4. The core personal consumption price index was also revised slightly lower, now showing a 1.3% rate of gain in Q2 versus an initial estimate of 1.4%, and this followed increases of 2.4% in Q1 and 1.9% in Q4.