Q2 GDP Preview
Q2 advance GDP is expected at 2.2% (range: 0.9% to 4.2%) following a 1% increase in Q1.
The consumption component of GDP should receive a generous boost from the government stimulus package, which should help real consumption improve from the 1% increase in Q1 (the lowest reading since Q2 ’01). Real consumption is expected to bounce back to 1.7% in Q2 despite the negative impact of higher food and energy prices. Durable goods consumption was down 6% in Q1 and consumption in services was up 3.1%.
Fixed income investment is expected to fall 2.7% in Q2, from a 6.9% drop in Q1, thanks to a more than 20% expected drop in residential construction which fell 24.6% in Q1 ’08 and dropped 25.2% in Q4 ’07. The remain few — if any — bright spots in the housing market going forward as rising unsold home inventories and the corresponding drop in home values will receive little support from dried up credit markets.
Inventories are expected to fall $20bln in Q2, from a $1.3bln Q1 decline, as a result of production cutbacks and perhaps slightly-better-than-expected demand.
Net exports are expected to jump by $56bln—nearly 2% of GDP—following a $23bln increase in Q1. The weak USD and the resulting demand destruction from higher energy import prices are the largest factors in the expected surge in Q2 net exports. Import fell 0.7% in Q1 ’08 following a 1.4% decrease in Q4 ’07.
Government spending is expected to grow 1.1% in Q2 from 2.1% in Q1. Meanwhile, the Q2 Chain Price Index is expected to increase 1.4% from 2.7% in Q1. The PCE Core Index is expected to rise 2% in Q2 from 2.3% in Q1.