Saturday, August 28, 2010

USA Q2 GDP Revised Downward to 1.6% (Chart)

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Is the USA Economy Bottom Bouncing?


USA Q2 GDP Revised Downwards to 1.6%

The Bureau of Economic Analysis released their Second Estimate of 2010 Q2 GDP which was +1.6%, down -0.8% from the Advanced Estimate of +2.4%. Consensus estimate of economists was +1.4%, so this was considered a "beat" of the estimate and the markets reacted accordingly - equities up, bonds down. However, a "not as bad as estimated GDP" is no victory as the margin of a +0.2% "beat" is tenuous at best.

A +3.0% annualized GDP growth rate is generally accepted as the minimum necessary to generate jobs  growth. Therefore, the USA is growing at approximately 50% of the rate necessary to bring down the unemployment rate. The Big Question is where is the USA economy headed? Three scenarios are being much discussed: 1) a double dip recession is imminent therefore GDP will turn negative soon, 2) the economy will continue this "bottom bouncing" with very slow growth which may adversely affect the unemployment rate (i.e., < +3.0%), or 3) the bottom is in and GDP growth will accelerate and happy days will be here again.

As one economist noted, it was as if the USA economy hit an invisible wall by June 2010. Q1 GDP per the Bureau of Economic Analysis was +3.7% which was enough to create jobs and reduce the unemployment rate. Now the Q2 GDP is estimated at less than half at +1.6% and is not considered a GDP that reflects a robust recovery. Of the three scenarios mentioned in the previous paragraph, the first two (double dip recession or bottom bouncing) seem the most likely onwards into 2011.

Below is a chart of the latest 16 quarters (4 years) of USA GDP as reported by BEA from 2006 Q3 through 2010 Q2 in Table 2. Contributions to Percent Change in Real Gross Domestic Product. As can be seen, there was a negative dip into the Great Recession beginning 2008 Q1, a rebound peaking with the 2009 Q4, a downward trend in 2010 Q1 and Q2. The 2010 Q2 GDP of +1.6% is the same as the 2009 Q3 GDP. The USA economy, based on this chart, does appear to be at a crossroads: a continuing downwards trend towards zero growth or a bounce upwards from here?

The 16-quarter average (4 years) is +0.49% per quarter, which is a stalled economy, a flat economy that is not producing jobs and has an increasing unemployment rate. The moving 4-quarter average (1 year) is +2.98% which is a break-even economy on jobs, perhaps creating a few jobs but is not robust.


USA Economy: Double Dip Recession or Bottom Bounce?



The Bureau of Economic Analysis Commentary on the 2010 Q2 GDP of +1.6%

"The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, personal consumption expenditures, exports, federal government spending, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased."

"The deceleration in real GDP in the second quarter primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending."


Links
USA Economic Weekly Leading Index: Double Dip Recession or Bottom Bouncing? (Chart) BoomDoomEconomy
S&P 500: Another Death Cross Arrives (Charts) MatrixMarkets
Bureau of Economic Analysis GDP Press Release (August 27, 2010)
Bureau of Economic Analysis GDP Full Release & Tables (August 27, 2010) PDF download


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