Friday, July 29, 2011

USA GDP Estimate a Dismal +1.3% in Q2 (GDP Charts) *Prior Q1 revised down to near-abysmal +0.4%*

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Bureau of Economic Analysis: USA Quarterly GDP Estimate


Official Statement by the Bureau of Economic Analysis is lower in this post.

USA GDP Q2 2011 First "Advance" Estimate The Bureau of Economic Analysis released the First "Advance" Estimate of Q2 2011 GDP which was +1.3% QoQ, for a total GDP of $15.00 trillion (annualized). This is an increase from the Q1 2011 GDP of +0.4% (revised). The Q2 2011 GDP (first "advance" estimate) of +1.3% is the lowest since prior Q1 2011 (+0.4% revised) and Q3 2009 (+1.7% revised). However, the GDP has increased for 8 consecutive quarters, since Q3 2009, although growth rates have ranged from a near-abysmal +0.4% in Q1 2011 to an encouraging +3.9% in Q1 2010.

Bureau of Economic Analysis Annual Revisions The BEA revised GDP amounts, and therefore the related changes, for the past 3 years (2010, 2009, 2008) plus Q1 2011. These revisions are incorporated in the charts below. The effect of these revisions on the USA recession and post-recession recovery scenario will be reviewed in a subsequent post.

Where is the USA Economy Going? The Big Question: where is the USA economy headed? Three scenarios are usually discussed: 1) a double dip recession whereby the GDP will turn negative yet again with higher unemployment, 2) the economy will continue "bottom bouncing" with very slow growth and a continuing high unemployment rate or 3) the bottom is in and GDP growth will accelerate, jobs will be created, and the unemployment will continue to decrease. Scenario 2) with USA slow economic growth appears to be the consensus for 2011 with an annual GDP growth projected of approximately +2.5% However, even scenario 2) now requires an acceleration of economic growth in Q3 and Q4 2011. The risk of a double-dip recession has increased considerably in 2011, initially because of the spike in oil prices beginning in March 2011. The debt ceiling and budget debate and probable cuts in federal spending could stall GDP growth in Q3 and Q4 2011 significantly. A shutdown of spending because of the failure of any bipartisan compromise would most likely result in a negative GDP beginning in August 2011.

USA Real GDP % by Quarter (Chart) The chart below is the annualized percentage change of the Real GDP (seasonally adjusted at annual rate) from the preceding quarter (QoQ), a common GDP measure. An initial negative drop occurred in Q1 2008, but was followed by a positive bounce in Q2 2008. A negative drop into the Great Recession began Q3 2008, followed by a steep decline in Q4 2008. The Great Recession continued for 4 quarters until Q2 2009. Positive GDP growth resumed in Q3 2009, the rebound peaking in Q1 2010. The Q1 2010 GDP of +3.9% is now the recent recovery peak. The Federal Reserve via the Federal Open Market Committee resorted to QE1 and QE2, direct quantitative easing, plus indirect quantitative easing, in an attempt to boost the economy, increase the GDP, and bring down the unemployment rate. QE2 was completed June 30, 2011 although reinvestment of U.S. Treasuries and mortgage-back securities into longer-term securities will continue indefinitely (indirect quantitative easing). The chart covers the USA Quarterly GDP as reported by the Bureau of Economic Analysis from Q2 2005 through the latest quarter reported.


USA Real GDP $ by Quarter (Chart) The chart below is the Real GDP (seasonally adjusted at annual rate) in total current dollars (annualized). The USA GDP pre-recession peak was Q2 2008 and the Great Recession low was Q2 2009. USA GDP has now increased 8 consecutive quarters. The Q2 2011 GDP (annualized) exceeds both Q2 2008 pre-recession peak and the prior Q1 2011 peak to reach an all-time high. The chart covers the USA Quarterly GDP (annualized) as reported by the Bureau of Economic Analysis from Q2 2005 through the latest quarter reported.


Commentary The Q2 2011 USA Quarterly GDP (first "advance" estimate) of +1.3% is disappointing and dismal. The revision of the prior Q1 2011 from +1.9% to +0.4% is near-abysmal. We estimated the USA Quarterly GDP QoQ for Q2 2011 as probably +1.5% or less, which it is in the first "advance" estimate. The current Q3 2011, the QE 9-30-11, appears from various economic indicators to be as weak as Q2 2011. We now initially estimate the USA Quarterly GDP QoQ for Q3 2011 as probably +1.5% or less. There is an increasing risk of a recession, negative GDP, for Q3 2011 if 1) USA federal government spending is significantly decreased 2) no bipartisan, satisfactory, medium-term budget agreement is approved and implemented, and/or 3) a bipartisan approved increase of the debt ceiling fails.


The Bureau of Economic Analysis Commentary on the 1st Quarter 2011 GDP (second estimate)

(July 29, 2011)

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 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent.

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The "second" estimate for the second quarter, based on more complete data, will be released on August 26, 2011.

The increase in real GDP in the second quarter primarily reflected positive contributions from exports, nonresidential fixed investment, private inventory investment, and federal government spending that were partly offset by a negative contribution from state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the second quarter primarily reflected a deceleration in imports, an upturn in federal government spending, and an acceleration in nonresidential fixed investment that were partly offset by a sharp deceleration in personal consumption expenditures.

Final sales of computers added 0.15 percentage point to the second-quarter change in real GDP after adding 0.08 percentage point to the first-quarter change. Motor vehicle output subtracted 0.12 percentage point from the second-quarter change in real GDP after adding 1.08 percentage points to the first-quarter change.



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