Q2 GDP-Adv. and Revised

Highlights

• Second quarter GDP increased 2.4%, which was fairly close to the Briefing.com consensus estimate that called for a 2.5% increase.
• There was a significant bias in the consensus forecast, however, and the details of the data suggest that Q2 GDP was actually stronger than originally expected.
• The BEA re-estimated all of the data from 2007 though Q1 2010 for its annual benchmark revisions. Q1 2010 GDP was revised up from 2.7% to 3.4%.  Since the consensus forecast was based upon the pre-revision data, Q2 GDP was actually substantially higher than estimated.

Key Factors

• The revisions, though, lent credence to what many people on Main Street had been thinking. The recession was deeper than originally expected and the recovery effort has been a little slower.
• From its peak in Q4 2007, GDP contracted 4.10% to its trough in Q2 2009. This was roughly 0.44 percentage points less than originally thought. The recovery effort through Q1 2010 only produced an increase in output of 2.57%, about 0.05 percentage points below the previously released data.
• The recovery did pick up a little steam in the second quarter compared to the first. Although the headline growth number of 2.4% was weaker than the revised  3.7% growth rate for the first quarter, real final sales of domestic product were up 1.3% compared to a 1.1% increase in Q1.
• Basically, second quarter GDP outperformed the first quarter with the exception of inventory growth. The individual GDP components confirm this.
• While PCE growth fell from 1.9% to 1.6% and export demand slipped from 11.4% to 10.3%, every other component showed improvement versus the first quarter.
• Nonresidential investment in structures increased 5.2% from -17.8%.
  Equipment and software purchases rose 21.9% compared to 20.4%.
  Residential investment increased 27.9% from -12.3%.
  Imports were up 28.8% from 11.2%.
  Government expenditures jumped 4.4% from -1.6%.

Big Picture

• The US has finally exited the recession, but growth prospects remain weak. As the inventory cycle continues to rev up, it expected that GDP will continue to grow throughout 2010. However, inventory growth will not result in more jobs and consumption could fall as government stimulus wanes in beginning of next year.

Category	2010 Q2	2010 Q1	2009 Q4	2009 Q3	2009 Q2
GDP	2.4%	3.7%	5.0%	1.6%	-0.7%
Inventories (change)	$75.7B	$44.1B	-$36.7B	-$128.2B	-$161.8B
Final Sales	1.3%	1.1%	2.1%	0.4%	0.2%
PCE	1.6%	1.9%	0.9%	2.0%	-1.6%
Nonresidential Inv.	16.9%	7.8%	-1.4%	-1.7%	-7.5%
Structures	5.1%	-17.76%	-29.2%	-12.4%	-20.2%
Equipment & Software	21.9%	20.5%	14.6%	4.2%	0.2%
Residential Inv.	27.8%	-12.3%	-0.8%	10.6%	-19.7%
Net Exports	-$425.9B	-$338.4B	-$330.1B	-$390.8B	-$342.0B
Export	10.4%	11.4%	24.4%	12.2%	-1.0%
Imports	28.8%	11.2%	4.9%	21.9%	-10.6%
Government	4.4%	-1.6%	-1.4%	1.6%	6.2%
GDP Price Index	1.8%	1.0%	-0.2%	0.8%	0.3%

Revised..

Category	2010 Q2	2010 Q1	2009 Q4	2009 Q3	2009 Q2
GDP	1.6%	3.7%	5.0%	1.6%	-0.7%
Inventories (change)	$63.2B	$44.1B	-$36.7B	-$128.2B	-$161.8B
Final Sales	1.0%	1.1%	2.1%	0.4%	0.2%
PCE	2.0%	1.9%	0.9%	2.0%	-1.6%
Nonresidential Inv.	17.6%	7.8%	-1.4%	-1.7%	-7.5%
Structures	0.4%	-17.76%	-29.2%	-12.4%	-20.2%
Equipment & Software	24.9%	20.5%	14.6%	4.2%	0.2%
Residential Inv.	27.1%	-12.3%	-0.8%	10.6%	-19.7%
Net Exports	-$444.9B	-$338.4B	-$330.1B	-$390.8B	-$342.0B
Export	9.2%	11.4%	24.4%	12.2%	-1.0%
Imports	32.4%	11.2%	4.9%	21.9%	-10.6%
Government	4.3%	-1.6%	-1.4%	1.6%	6.2%
GDP Price Index	1.9%	1.0%	-0.2%	0.8%	0.3%