2nd Quarter Real GDP 1.2%, 1st Quarter Revised Lower to +0.8%; Bloomberg Spins This Mess Positive

By: Mike Shedlock | Fri, Jul 29, 2016
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Not only did real GDP come in on the low side, below nearly all consensus estimates, but first quarter GDP was revised lower to 0.8% from 1.1%.

Factoring in the downward revision, my second quarter guess of 0.8% was extremely close. For details please see GDP Forecast Roundup: GDPNow, Nowcast, Econoday, Goldman, Markit, ZeroHedge, Mish.


Bloomberg Spins This Mess Positive

The Bloomberg Econoday consensus estimate was 2.6% in a range of 2.2% to 3.4%.

Despite the huge miss compared to expectations, Bloomberg Econoday managed to put a positive spin on this mess.

Highlights

Second-quarter GDP looks very weak at only a plus 1.2 percent annualized rate, but the details are positive. The biggest positive is consumer spending where growth, showing strength across readings, came in at a stellar 4.2 percent rate, more than double the first-quarter's 1.6 percent rate.

A plus for the economy but a big negative in this report is slowing inventory accumulation which pulled down GDP by 1.2 percentage points in the quarter. But lean inventories point ahead to new accumulation which is a plus for future production and employment.

Another negative in the report is a reversal in residential investment, which had been running in the double-digit zone but which fell at an annualized 6.1 percent to pull down GDP in the second quarter by 2 tenths. A central concern remains nonresidential fixed investment, falling at a 2.2 percent rate and pulling down GDP by 3 tenths in the quarter. Weakness here points to weakness in business confidence and trouble ahead for productivity growth.

Recent History

The first estimate for second-quarter GDP is expected to come in at plus 2.6 percent for a sizable gain from first quarter growth of 1.1 percent which was held down by severe weakness in nonresidential fixed investment. Retail sales rose sharply in the second quarter and are expected to feed strong gains for the consumer spending component, offsetting what is expected to be continued weakness in business investment, slowing in residential investment, and slowing in inventory accumulation. The GDP price index, reflecting energy prices, is expected to accelerate sharply, to plus 1.8 percent from 0.4 percent in the first quarter.


Inventory Madness

The inventory-to-sales numbers remain in the stratosphere so it is beyond absurd to spin inventories as a huge positive.

On July 12, Bloomberg noted the "success" in inventory reduction. Here is a chart of that "success".


Overall Inventory-to-Sales Ratio

Overall Inventory-to-Sales Ratio

For more details and three more inventory-to-sales charts, please see Wholesale Trade: Inventory-to-Sales Ratios Extremely Elevated.

This Econoday writer is a real "gem".


Three Consecutive Quarters of Weak GDP

The last three quarters are 0.9%, 0.8%, 1.2%.

Mish Tweet


Real GDP Historic Trend

Real GDP Historic Trend


Real GDP Compounded Rate of Change

Real GDP Compounded Rate of Change

The preceding two charts courtesy of Doug Short Q2 GDP Advance Estimate: A Major Downside Surprise.


Surprises Galore

As posted yesterday ...

Straight up, Chris Williamson comes closest. Factoring in the downward revision, it's closer to a tie between Williamson and I.


Looking Ahead

Should consumer spending falter for any reason, we will be looking at zero or negative GDP numbers.

 


 

Mike Shedlock

Author: Mike Shedlock

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Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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