–Annual Revisions Cut 2008-11 Growth, Suggest Slack

By Joseph Plocek

WASHINGTON (MNI) – The U.S. Q2 GDP report printed +1.5% for overall
real growth and +1.2% for real final sales, both showing slower growth,
as expected, from the revised +2.0% real GDP reading in Q1.

In Q2, consumer spending decelerated. The key swing factor was
durable goods spending, where there was a -1.0% print after +11.5% in
Q1. A consumption breakdown shows cuts in spending on autos and home
furnishings.

Nondurables posted +1.5% despite dips in spending at restaurants
and on clothing, and services posted +1.9%.

Also in Q2, imports accelerated, fixed investment decelerated, and
government spending fell. Federal spending was -0.4% and State and Local
spending was -2.1%, both still problematic as headwinds against growth.

Inventories turned up but it doubtful that this is a sign of
strength given weak demand.

The Commerce Department assumed higher net inventory (higher
non-auto wholesale and retail, but lower nondurable manufacturing
inventories) and a narrower trade gap in missing June data.

The Q2 GDP price index was +1.6% and the core PCE price index was
+1.8%, both well behaved.

In the annual revisions, 2010-11 GDP levels were revised lower and
2008-11 real growth was cut. Overall, nonresidential fixed investment
was lowered to -3.6% from -2.3% previously in 2008-11, and State & Local
government spending hiked to -1.0% from -1.6%.

For 2011 growth was revised up — mainly in Q4 and with half the
revision due to a deflator change. Also, Q2 growth was revised up but Q1
and Q3 down. The lower levels overall show a slower growth phase,
suggesting additional slack in the economy.

The Commerce Department said the regular annual revisions that
reflect new and more comprehensive source data were limited to three
years. In explaining the new numbers, the Commerce Department noted
partly offsetting revisions to the quarters within each year and said
the average annual change was just +0.1 point overall. The Q1 real GDP
revision was also just +0.1 point.

Officials called the growth pattern of the last several years
“largely unchanged” after reviewing the GDP revisions. That is, the data
still show contraction through H1:2009, followed by weak-ish recovery.

A table of some GDP components for recent periods is below.

GDP Components: Q1:11 Q2 Q3 Q4:11 Q1:12 Q2:12
Real growth +0.1% +2.5% +1.3% +4.1% +2.0% +1.5%
Real final sales +0.6 +2.4 +2.3 +1.5 +2.4 +1.2
PCE +3.1 +1.0 +1.7 +2.0 +2.4 +1.5
Nonres fixed invest -1.3 +14.5 +19.0 +9.5 +7.5 +5.3
Res fixed invest -1.4 +4.1 +1.4 +12.1 +20.5 +9.7
Net Exprt Contrib add 0.03 add 0.54 add 0.02 cut 0.64 add 0.06 cut 0.31
Inventory Contrib cut 0.54 add 0.01 cut 1.07 add 2.53 cut 0.39 add 0.32

**MNI Washington Bureau: (202)371-2121**

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