Revisions Undermine A Rebound In US 2Q GDP
The world's largest economy marked a hearty rebound in activity through the second quarter of the year; but revisions to previous readings have clearly distracted the market from the promising headline report. For the three-month period through June, US growth advanced at a 1.9 percent annualized pace - not an insignificant shortfall from the 2.3 percent clip expected. From the details of the report, it was clear that the usual suspects were responsible for the shortfall.
The gross private investment component dropped 14.8 percent (the biggest contraction in a year and a half) led by a 15.6 percent plunge in residential investment. On the other hand, there were promising readings from the economy's other key sectors. A multi-decade low in consumer confidence and cooling in employment trends wouldn't curb American's spending habits. Personal consumption rose 1.5 percent through the period, against 0.9 in the pervious quarter, with a pickup in nondurable goods and services componsating for a 3 percent contraction in the discretionary spending-related durable group. Also, the weak dollar was starting to show through in export activity. A 9.2 percent increase in the value of shipments abroad offers the greatest potential for expansion through the remainder of the year.
However, while the economy seems to have picked itself up from the worst of an economic slump, economists and market participants are still concerned about the health of the US. Aside from the headline report, the first quarter reading was revised lower from 1.0 percent to 0.9 percent; but more importantly, the fourth quarter 2007 figure was recalculated from a slight pickup on an annualized pace to an actual 0.2 percent contraction. This was the first time the growth reading has reported an official recession (loosely defined as a quarter or three months of contraction) since the period through September 2001. On the other hand, the market is typically more concerned about predicting the future rather than looking back to revisions of history; but alterations to these numbers effectively undermine the current release of as traders worry the second quarter reading will be open to changes later down the line. What's more the outlook for growth is already under duress from a quickly fading consumer sector (their spending accounts for an estimated 70 percent of economic activity) while the housing recession and downturn in business investment in more recent data are keeping the pressure on activity.