GDP Shows Economy Is Far from Recession 12 comments
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In its preliminary 2Q08 GDP estimates, the Commerce Department said on Thursday, the country’s gross domestic product was revised up at an annual rate of 3.3% for the April-June period, exceeding analysts’ initial estimates of a 1.9% increase as well as economists’ forecast of a 2.7% gain. Constant dollar GDP is now up 2.2% versus a year ago.
The acceleration in real GDP growth in 2Q08 reflects a larger decrease in imports of 7.6% compared with a decrease of 0.8% in the 1Q08, and an acceleration in exports of 13.2% in the second quarter, compared with an increase of 5.1% in the first, obviously, helped by a weaker dollar.
Other components contributing in the acceleration process were: personal consumption expenditures, federal government spending, nonresidential structures, and state and local government spending. The largest negative contribution on real GDPcontinues to be home building, which subtracted 0.6 points from the growth rate.
The upward revision in real GDP primarily reflects upward revisions to net exports, which added 3.1 points to real GDP growth versus initial estimates of 2.4% — and to private inventory investment which subtracted 1.44 points from the 2Q’08 in real GDP.
Excluding housing, real GDP grew at a 4.0% rate in Q2 and is up 3.2% versus last year. Current Dollar GDP growth was revised up to a 4.6% versus an original estimate of 3.0%. The growth marked the economy’s best performance since the third quarter of last year, when GDP rose at a 4.8% pace.
Pessimistic assumptions and negative financial headlines are one thing, reality is another. Financial markets’ inclination has always been that of looking ahead, an aspect often ignored by many market participants. The fact is, the good news on the economy keeps getting ignored as the majority of traders and investors remain focused on what could go wrong in the months ahead. As we have always stressed, outside of housing and banking sector, reasonable economic stability and corporate profit growth is quite real.
Bottom line: Real GDP growth in the first half of fiscal ‘08 has remained positive, as we predicted. The revised GDP number undeniably showed an economy a long way from recession in the second quarter.
We expect a virtual repeat of the economy’s first half performance over the second half of the year. We are also projecting a better than 2.3% growth rate in Q3′08 versus 1.2% consensus.
Also Thursday, the Labor Department reported the number of newly laid off people seeking jobless benefits fell for the third straight week. Initial claims for unemployment benefits declined to a seasonally adjusted 425,000 in the week ended Aug 23, down 10,000 from the previous week.
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This article has 12 comments:
seekingalpha.com/artic...
“The punishment of wise men who refuse to take part in the affairs of government is to live under the government of unwise men.” - Plato
That said stocks have been attractively priced and will find future earnings comparisons easier to attain. We are at a time when it feels as dangerous to be out of the market as it is to be in the market.
I hope I am proved wrong but cant help but feel that government statistics are being manipulated. Inflation as reported is not credible. Also the government spending portion and the accounting for Fed Reserves is suspect.
The best indicator that we are coming out of a recession will be when they declare that we have been in a recession.
JS
Government statistics (all statistics, for that matter) will routinely lean in the direction of the collector's personal bias whenever there's a component subject to personal judgment (e.g., like inflation). They typically push the envelope, but this one's a total whopper. Someone's got real nerve expecting us to believe this.
Bloomberg: ``Outside of trade, the economy is considerably weaker,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``When you look at the spending, it looks terrible for the second half of the year.''
Reuters: "This number seems to overstate the underlying strength even though exports are obviously strong," said James O'Sullivan, an economist at UBS Securities in Stamford, Connecticut.
US 2Q GDP growth at 3.3 per cent? Laughable.
Most economists were expecting the number to come in somewhere around 1.9 per cent. When the data was released yesterday from the Bureau of Economic Analysis, everyone was suddenly scrambling for explanations.
The figure is “simply not credible” writes Yves Smith.
The below chart is from a post by Barry Ritholz at the Big Picture. In blue it shows the inflation measure used in adjusting for real GDP. In red, it shows the CPI (regarded by most as a conservative measure of inflation). As you can see, the two rather strikingly diverge.
In fact, the BEA is marking inflation at 1.2 per cent, which is literally incredible.
It’s interesting to note the historical points at which the two series diverge, with the CPI much higher. It’s usually on the brink of - or during - recessions. In other words, when good news about the economy is most needed.
Related links
US stocks rally after GDP boost - FT
Barry Ritholtz, call it like it is... Appreciate honesty rather than "fluff" Wait until the revised figures come out in a few mos.