Thursday, September 30, 2010

USA Q2 GDP Revised Slightly Upwards to +1.7% (Chart)


USA Economy: "Sharp acceleration in imports and a sharp deceleration in private inventory investment"

USA Q2 GDP Revised Slightly Upwards to 1.7%

The Bureau of Economic Analysis released their Third Estimate of 2010 Q2 GDP which was +1.7%, up +0.1% from the Second Estimate of +1.6% for a total GDP of $14.579 billion. This is lukewarm data, not good but could be worse.

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 whereby the 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., less than +3.0% growth), 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. The Q2 GDP is estimated at about half that at +1.7% 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.

USA GDP by Quarter (Chart) Below is a chart of the latest 22 quarters (4 years) of USA GDP as reported by BEA from 2005 Q1 through 2010 Q2. 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 +1.7% is the same as the 2009 Q3 GDP (+1.6%). 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 moving 4-quarter average (1 year) is +3.00% which is a break-even economy on jobs, perhaps creating a small net increase in jobs - but is not robust. The 22-quarter average +1.17% per quarter, which is a stalled economy, a flat economy that is not producing jobs and has an increasing unemployment rate. However, the current +1.7% is above this average.

The Bureau of Economic Analysis Commentary on the 2010 Q2 GDP of +1.7% (Third Estimate)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.7 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 1.6 percent (see "Revisions" on page 3).

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, private inventory investment, federal government spending, 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, accelerations in nonresidential fixed investment and in federal government spending, and an upturn in state and local government spending.

Final sales of computers added 0.03 percentage point to the second-quarter change in real GDP after adding 0.10 percentage point to the first-quarter change. Motor vehicle output subtracted 0.06 percentage point from the second-quarter change in real GDP after adding 0.74 percentage point to the first-quarter change.

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