–Q2 Appears to Have Modest Growth But Momentum Slowing

By Joseph Plocek

WASHINGTON (MNI) – The U.S. Q1 real GDP revision again disappointed
at a below-expectations +2.7%, and growth appears to have slowed further
over the course of Q2.

The Q1 revision reflected more imports (due to annual revisions to
data) and less consumer spending. The latter was in services and natural
gas. There was also more inventory building than previously estimated.

The inventory gain signals less future growth because the inventory
rebuilding cycle is probably closing, signaled by the fact that Q4 saw
more restocking than Q1. The pattern of lower revisions over the period
of measured growth is also worrisome — it is not the stuff of a strong
economy.

Minor revisions were seen elsewhere. Residential fixed investment
fell 10.3% and nonresidential fixed investment rose 2.2%. Nonresidential
saw a drop in spending on structures but huge gains in information
processing equipment and software spending.

Real state and local government spending was down 3.8%. Looking
ahead, the failure of the property market to recover sharply could
squeeze this spending as budgets are reduced.

Data for Q2 has also shown a slowing over its course, with sales
and manufacturing data recently stalling.

The U.S. is still showing three consecutive periods of growth
through Q1 that suggest recession ended last spring.

GDP annual revisions are due July 30, the Commerce Department said.
The revisions will update annual surveys for manufacturers, retail, and
local government, and will incorporate new federal budget and tax data.
There will also be new services and communications equipment data, and
improvements in methodology for purchasing power parity and saving
measures.

In other bits, GDP prices remained subdued at +1.1%. Core PCE
prices were up 0.7%, and the price index for gross domestic purchases
was up 1.7%, unchanged from the prior estimate.

Corporate profits from current production were up 8% during the
period. Profits before tax printed a $215.1 billion gain. A breakdown by
sector showed most of the advance was in domestic profits of
manufacturing and utilities firms.

GDP Compnts: Q3 Q4 Q1 Orig Q1 Rev Q1, 3rd Est
Real GDP +2.2% +5.6% +3.2% +3.0% +2.7%
Final Sales +1.5% +1.7% +1.6% +1.4% +0.8%
PCE +2.8% +1.6% +3.6% +3.5% +3.0%
Res Fix Invest +18.9% +3.8% -10.9% -10.7% -10.3%
Nonres FixInvest -5.9% +5.3% +4.1% +3.1% +2.2%
Net Exports cut 0.81 add 0.27 cut 0.61 cut 0.66 cut 0.82
Chg Pvt Invty add 0.69 add 3.79 add 1.57 add 1.65 add 1.88

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