Source: Wells Fargo Securities Economics Group
Slower Q2 Growth, but no Real Surprises
The news that real GDP grew at just a 1.5 percent annual rate during the
second quarter is truly anticlimactic. Virtually every economic report and
many of the earnings reports from major U.S. multinationals had already
revealed ample evidence that economic growth had slowed in the United
States and around the world. This morning's GDP number just made it
official.
With the release of this morning's numbers, the GDP data were also revised
back to the first quarter of 2009. The revisions were notable for a couple of
quarters. Growth in the fourth quarter of last year and first quarter of
2012 was slightly stronger than initially reported, while growth in the first
quarter of 2011 was nearly revised away entirely. On net, the data show that
the recovery has been slightly stronger than initially reported.
Some of the revisions to the components of real GDP were quite
substantial. Government spending fell less than earlier reported and
business fixed investment, both in equipment and structures, was much
stronger than first reported. Consumer spending and residential
investment were about the same as previously thought and there was less
inventory building during the first three quarters of 2011, but much more
inventory building in the fourth quarter of 2011 and first quarter of 2012.
Moreover, inventory building picked up in the second quarter, accounting
for one-fifth of the increase in second quarter real GDP growth.
The acceleration in inventory building during the past three months
suggests that production will slow in coming quarters. This makes intuitive
sense given the recent disappointing earnings announcements, many of
which also contained reduced expectations for sales in coming quarters.
Consumer spending rose at a 1.5 percent annual rate in the second quarter,
which was close to expectations. Spending on durables fell at a 1.0 percent
rate, reflecting weaker motor vehicle sales. Spending on structures slowed
from a 12.9 percent pace in the first quarter to just a 0.9 percent gain in Q2.
The slowdown is likely due to reduced outlays for oil and gas exploration.
Spending for equipment and software actually picked up slightly, climbing
at a 7.2 percent pace, compared to a 5.4 percent pace in Q1.
The trade deficit widened by about $10 billion on an inflation-adjusted
basis, with exports rising 5.3 percent and imports rising 6.0 percent. Both
are expected to slow during the second half of the year. Government outlays
fell at a 1.4 percent pace, with federal outlays falling at a 0.4 percent pace
and state and local government outlays declining at a 2.1 percent pace.
The weaker second quarter data should have little impact on the Fed's
deliberations. Our early read of the third quarter growth points to growth at
around a 1.2 percent pace, which is where real final sales were in Q2.