Highlights of the second quarter GDP report
- Q1 GDP was 3.1% q/q annualized
- Q4 was 2.2% (revised to 1.1%)
- GDP y/y +2.3% vs +2.7% prior
- 2018 GDP unrevised at +2.9%
Details:
- Personal consumption 4.3% vs 4.0% exp (fastest since Q2 2017)
- Prior personal consumption +0.9% (revised to +1.1%)
- Consumer spending on durables +12.9% vs +0.3% prior
- Consumption added 2.85 pp to GDP
- Business investment -0.6% vs +4.4% prior (first contraction since 2016)
- Home investment -1.5% (6th consecutive contraction)
- Gross private investment cut 1.0 pp from GDP
- Exports -5.2%
- Imports +0.1%
- Trade subtracts 0.65 pp from GDP
- Inventories +$71.7B (cuts 0.88 pp from GDP)
- Govt consumption adds 0.85 pp to GDP
Inflation:
- GDP price index 2.4% vs 2.0% expected
- Prior GDP price index 0.9% (revised to 1.1%)
- Core PCE 1.8% vs 2.0% exp
- Prior core PCE 1.2% (revised to 1.1%)
- GDP deflator +2.5%
Both trade and inventories were less of a drag on growth than anticipated while consumption was stronger. The drop in business investment is concerning and housing remains surprisingly weak.
This certainly damages the case for a 50 basis point cut but the odds had already been whittled down to 15%.
Looking ahead, this number probably isn't as good as it seems. Consumption was strong but trade isn't headed in the right direction and business investment will continue to slip, especially due to oil and gas drilling slowing. On the flipside, housing should strengthen at some point, although there is no sign of it yet.
