• Fixed Investment Spending and equipment spending are each expected to plunge 8%
• Residential Construction is expected to fall 19%, Non-Residential Construction is expected to increase 4%
• Government Spending is expected to increase 1.3% following a 3.9% increase in Q2
• Personal Consumption is expected to fall 2.4% follow a 1.2% increase in Q2
• Real Consumption is expected to fall 3%, which would be weakest quarterly reading since Q4 ‘81
• Factors weighing down real consumption are likely to include: lingering pipeline inflation pressures as a result of further price offsets, a further pull-back in the tax rebates from the stimulus package, and a reduction in demand as a result of the financial market meltdown
• Durable goods consumption is expected to fall 3% following a 2.8% drop in Q2 and a 4.3% drop in Q1
• Non-Durable goods consumption is expected to gain 2.5% following a 3.9% increase in Q2
• Consumption in services is expected to increase 1.1% following a 0.7% increase in Q2
• Advance Q3 GDP is expected to decline 0.6% following a 2.8% increase in Q2
• The combined impact of Hurricanes Ike and Gustav, along with the strike at Boeing, are expected to shave 0.5% from Q3 GDP
GDP will average only 0.4% for the year, and recover to 2.3% growth in 2009, according to Freddie.
Real GDP Q3 08 -0.5%
Q4 2008 -1.1%
Q1 2009 -0.7%
Q2 2009 -0.3%
Q3 2008 +1.4%
The final revision to Q2 GDP was worse than expected, shaving half a percentage point off US growth. Q2 GDP is now estimated at 2.8% from 3.3% in the preliminary data.
The GDP price index edged up 1.1%, slightly below expectations. Core personal consumption expenditures (PCE) rose 2.2%, just above forecasts of 2.1%. Consumers faced a headline PCE inflation rate of 4.3% in Q2.
Downward revisions across most GDP components were to blame for the lower headline number. Personal consumption was revised down to 1.2% from 1.7% reported last month. All 3 subcategories were lower than previously estimated, with durable goods consumption revised to -2.8% (-2.5% prior), nondurables up 3.9% (4.2% prior) and services up 0.7% (1.3% prior).
The BEA said the downward revision to services reflected newly available data from the EIA on electricity usage. Overall, consumption added nearly 0.9% to the GDP growth rate, better than the 0.6% seen in Q1 and Q4. Services added only 0.28%, the lowest contribution since 1991.
Exports – which benefited from the weak USD and pushed GDP up 3.3% in the preliminary estimate (from 1.9% in the advance report) – were revised down to a gain of 12.3% compared to 13.2% prior. Imports fell 7.3%, slightly less than the 7.6% drop estimated last month. Net exports continued to be the largest GDP booster by far, adding 2.93% to the annual growth rate.
Final sales were also lower, up 4.4% vs. the 4.8% reported previously. Government spending was unchanged (up 3.9%).
Gross private domestic investment was the only major GDP component to show some improvement in the final figures, now estimated to have fallen 11.5% in Q2 vs. the 12% reported previously. Improvement was evident in the residential component (down 13.3% instead of 15.7%) and structures investment soared 18.5% (13.7% prior). Residential investment shaved 0.52% off GDP growth, an improvement from the previous 3 quarters.
Corporate profits fell 3.8%, or $60.2bln, in Q2 compared with a $37.8bln drop in the preliminary figures. The BEA said the downward revision reflected new data from quarterly financial reports, regulatory agency reports, and corporate financial statements. It was the worst quarter for corporate profits since Q4 2006.
• Final Q2 GDP is expected to be unrevised at 3.3% from 1.9% in the advance report
• Personal Consumption is expected to be left unchanged at 1.7%
• Core PCE and the GDP Price Index are also expected to be unchanged at 2.1% and 1.2%, respectively
The final revision to Q2 GDP is expected to be negligible, as a large proportion of analysts’ forecast point to an unchanged 3.3%. The relevance of this data will be considerably lessened by recent market turmoil (not reflected in Q2 GDP), as well developments in the $700bln financial market bailout proposal. Markets are likely to be disinterested with marginal changes in the data, as financial market uncertainty should maintain focus on what is imminent, not what happened last quarter.
Expected revisions:
• Construction Spending is expected to be revised up $6bln
• Government Spending is expected to be revised up $2bln
• Net Exports are expected to be revised down $6bln
• Consumption Spending is expected to be revised down $2bln
• Final Q2 GDP is expected to be unrevised at 3.3% from 1.9% in the advance report
• Personal Consumption is expected to be left unchanged at 1.7%
• Core PCE and the GDP Price Index are also expected to be unchanged at 2.1% and 1.2%, respectively
The final revision to Q2 GDP is expected to be negligible, as a large proportion of analysts’ forecast point to an unchanged 3.3%. The relevance of this data will be considerably lessened by recent market turmoil (not reflected in Q2 GDP), as well developments in the $700bln financial market bailout proposal. Markets are likely to be disinterested with marginal changes in the data, as financial market uncertainty should maintain focus on what is imminent, not what happened last quarter.
Expected revisions:
• Construction Spending is expected to be revised up $6bln
• Government Spending is expected to be revised up $2bln
• Net Exports are expected to be revised down $6bln
• Consumption Spending is expected to be revised down $2bln
Canadian Finance Minister Flaherty expects 2008 GDP to increase by 1%. Today’s 2nd Quarter GDP was at a 0.3% anualized rate from a downwardly revised Q1 reading of down -0.8% (previously -0.3%). Month on Month June GDP was at 0.1% versus a -0.1% reading in May.
Upward revisions to the Q2 GDP numbers were stronger than expected with growth increasing 3.3% compared with the 2.7% analysts had expected. Final sales were revised up to 4.8%, almost a percentage point stronger than the original reading in July. Fewer of those sales were satisfied from stocks on hand and more were satisfied by current period production than had been previously estimated. Nonfarm inventories were reduced by $52.9 billion compared to the previous estimate of $66.6 billion.
Trade provided the biggest boost to final sales as exports were revised up to a 13.2% annual rate and import growth declined at a 7.6% annual rate. As imports fall, more of domestic demand is satisfied by domestic producers, helping to boost GDP growth. Together net exports contributed 3% to GDP growth, the largest contribution trade has made since 1980. Exports accounted for slightly over half of that gain, contributing 1.65%.
Personal consumption expenditures increased by 1.7% in the second quarter, up from the 1.5% estimate the Commerce Department made in July. Durable goods purchases were down for the second quarter in a row, declining 2.5%, despite the tax rebate checks. Nondurable goods purchases were up 4.2% and purchase of services increased at a 1.3% annual rate, slightly above the prior estimates.
Business fixed investment declined for the fourth quarter in a row, down 2.5%, despite continued strong gains in nonresidential construction. Business purchases of equipment and software declined at a 3.2% annual rate, its largest rate of decline since early 2004. The continued weakness in housing starts was reflected in a 15.7% annual rate of decline in residential construction which took 0.6% off of GDP growth. However, that was the first time in a year that residential housing depressed GDP growth by less than a percentage point.
The inflation rate increased by 1.2% in the second quarter of 2008, slightly more than the 1.1% estimate in July but still its smallest gain in a decade. However, the closely watched core PCE index increased at a 2.1% annual pace and overall inflation faced by consumers was increasing at a 4.2% annual rate.
Corporate profits after taxes fell 3.8% in the second quarter, the largest percentage decline since 2005 and are down 4.9% from year earlier levels. However, adjustments for the change in the tax law to reflect the investment aspects of the economic stimulus package helped to maintain the cash flow for the quarter which was unchanged. Profits after tax for nonfinancial corporations fell $51 billion in the second quarter but businesses chose to boost dividend payments and reduce funds held for internal purposes. Unit labor costs for nonfinancial corporations showed a small decline for the quarter.