Q2 GDP falls to 1.3%; Whoa: Q1 revised downward to 0.4%?

posted at 8:39 am on July 29, 2011 by Ed Morrissey

As expected, the US economy slowed even further in the second quarter.  After posting an anemic 1.9% in the first quarter, the Commerce Department announced that the estimate for annualized second-quarter growth came in significantly below that at 1.3%.  Real final sales of domestic product improved, however:

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.

There isn’t a lot of good news in this report, but the real final sales number might be one less-dim spot in a dark result.  In Q1, that number only came to 0.6%, which meant that most of the growth in the first quarter came in inventory growth.  In this preliminary report, that figure comes in at 1.1%, which means that most of the Q2 growth came from actual final sales rather than inventory adjustments.  That could portend a better alignment of just-in-time purchasing to demand, which would be great news if demand had picked up instead of slacked off.

Reuters, of course, got surprised by the news:

The economy grew less than expected in the second quarter as consumer spending barely rose amid higher gasoline prices, and growth braked sharply in the prior quarter, a government report showed on Friday.

Growth in gross domestic product – a measure of all goods and services produced within U.S. borders – rose at a 1.3 percent annual rate, the Commerce Department said. First-quarter output was sharply revised down to a 0.4 percent pace from 1.9 percent.

Economists had expected the economy to expand at a 1.8 percent rate in the second quarter.

Really?  Really? Durable goods orders tanked April and June, losing more than 2% in each month, while May only saw an increase of 1.9%.  Imports increased in the final month, too, which push downward on GDP growth. Frankly, I’m surprised that the Q2 number came in as high as it did; I was guessing a positive number below 1%.  I’d bet on the next two planned restatements in August and September being downward rather than upward revisions.

Consumer spending remains weak.  Gross domestic purchases only increased 0.7%, the same as in Q1, despite less pressure from gas prices in Q2.  Personal income rose at half the level as Q1 (4.2% to 8.3%), while real personal disposable income only rose 0.7%, again the same as Q1.  Personal outlays slacked off, too, increasing only 3.1% compared to Q1′s 5.8%, but the personal savings rate edged upward to 5.1%, from 4.9% in Q1.

We can expect this to make employers even more leery about adding jobs in the next couple of months, regardless of the debt ceiling resolution.  This will show further the damaging effects of Obamanomics and the expansion of the regulatory state, especially at a time of high unemployment.

Update: The AP doesn’t pull any punches, calling this the weakest quarter since the recession officially ended in June 2009:

The economy expanded at meager rate of 1.3 percent annual rate in the spring after scarcely growing at all in the first three months of the year, the Commerce Department said Friday.

The combined growth for the first six months of the year was the weakest since the recession ended. The government revised the January-March figures to show just 0.4 percent growth — down sharply from its previous estimate of 1.9 percent. …

The sharp slowdown means the economy this year will likely grow at a weaker pace than last year. And economists don’t expect growth to pick up enough in the second half of the year to lower the unemployment rate, which rose to 9.2 percent last month.

In fact, we might start seeing net job losses again at this level of “growth.”

Addendum: One e-mailer wondered who declared the recession over in the first place.  Recessions end when GDP growth gets into positive territory; it’s a technical definition, not a qualitative expression of economic vigor.

Update II: I was concentrating so hard on the topline number and the components in Q2 that I missed this statement in the first paragraph:

In the first quarter, real GDP increased 0.4 percent.

The last revision showed it at 1.9%, which is one hell of a downward revision. It wasn’t the only downward revision, either; 2008Q4 got revised downward to -8.9%.  How did the Q1 number get revised so sharply downward?

Update III: One commenter said that the 0.4% was an increase in Q1′s GDP, not the Q1 GDP number itself.  That’s incorrect.  GDP numbers are always given as the annualized difference from one quarter to another, in chained dollars (at the moment, 2005 dollars).  If anyone doubts that the Q1 number got changed from 1.9% t0 0.4%, just download the Excel spreadsheet showing the historical estimates and look for the 2011Q1 chained-dollar figure; it’s 0.4%.

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Thanks.

I just found something somewhere else that lists the dates for the Advanced, Preliminary, and Final estimates for GDP.

Q1 (2011) went from 1.8 to 1.8 to 1.9 with the “final” released on 6/24. Now I’m wondering why another revision (same for Q4 2008, which, btw, was the low point for this recession) to Q1. Did they “uncover” some new information? Were they propping up Q1? Or are they trying to generate even more fear in the market and elsewhere ahead of this damned debt-ceiling vote?

The whole thing smells really bad.

BKeyser on July 29, 2011 at 9:34 AM

KNow why??? Because the Gov can guess BS all day long, but once companies start reporting legally on their actual activity within quarterly reports/quarterly conference calls – the real numbers have to be adjusted to reality – for its illegal not to.

Thats why the timing is always the 3rd-4th week out of the quarter for “revisions”

Just remember – Obama stood in front of Caterpillar execs and employees, lied through his teeth about their “recovery through TARP”, claimed they would be just fine… until 24 hours later when the CEO said it wasnt true, anounced layoffs and the slide has continued.

Odie1941 on July 29, 2011 at 9:39 AM

It didn’t take long for the markets to react.

Electrongod on July 29, 2011 at 9:40 AM

There’s nothing wrong with this country that bankrupting the NYT, ABC, NBC, and CBS wouldn’t cure. Get busy with that folks. Boycott the LSM.

Metanis on July 29, 2011 at 9:41 AM

This is what you get when you put Harvard Academia in charge of the last super power.

This is what happens when the U.S. media turns a Presidential Election into a Popularity contest.

Have Americans learned any lessons from the Election of 2008?

Book learn’n is no substitute for experience. Pretty package, Pretty is as Pretty does.

Dr Evil on July 29, 2011 at 9:42 AM

At least we know the Messiah can still turn water into wine.

technopeasant on July 29, 2011 at 9:42 AM

How did the Q1 number get revised so sharply downward?

Faking a recovery is hard. People find the flaws in your analysis and you have to adjust things repeatedly to fix the FOUND lies you used to make things look better than they were. This is why the government is claiming to be collecting the lowest % of GDP in taxes that it has collected in over 60 years. Because the GDP is no where near as high as they are claiming. It is all a shell game.

astonerii on July 29, 2011 at 9:43 AM

Is it possible Q1 was revised to make Q2 look like an improvement?

I keep reading how Q2 is the worst showing since the recession ended, followed almost immediately in every report that Q1 was revised downward to 0.4. Well, last time I checked, 1.3 is higher than 0.4, effectively reversing a downward trend.

It’ll be interesting to see how Carney spins this today; if he says “1.3% isn’t where we want it to be, but at least we’ve reversed the trend and are showing upward growth”, we’ll know.

BKeyser on July 29, 2011 at 9:46 AM

THERE WAS NO RECOVERY.

dogsoldier on July 29, 2011 at 9:10 AM

You get the gold star for the day! There never has been any recovery, they, the administration, have been playing with the numbers since Obozo started spending money.

How come all of his economic advisers and even the media are always surprised by the “UNEXPECTED” results of their predictions. If they didn’t play around with the numbers, then it would be a lot worse.

belad on July 29, 2011 at 9:46 AM

At least we know the Messiah can still turn water into whine.

technopeasant on July 29, 2011 at 9:42 AM

Fixed

teke184 on July 29, 2011 at 9:48 AM

Well, if barry likes chaos, he’s luving this. Aside from barry’s obsession with hurting people he and the left don’t like, there’s no reason to increase taxes. I think all sane people can agree on that now.

On the other hand, from a Keynesian point of view, you don’t want to have a fiscal “contraction” either. One way or another, if the Rs do “cut” spending, then the Fed will do qeX. I can’t see how this ends well. Between the “best and brightest” running our country and a dishonest, leftwing press, and a voter population that counts on it government checks…i just don’t know.

r keller on July 29, 2011 at 9:51 AM

This is why the government is claiming to be collecting the lowest % of GDP in taxes that it has collected in over 60 years.

Oh, and some people will claim it is because the rich are not making as much money in this down economy. But the truth is that the rich made far more money in a shorter period of time than they did before. The number of millionaires and billionaires fully recovered already, and that money is taxable. The profits at many companies thanks to government handouts is higher than the past. GDP is down, rich are making money faster, and companies are profiting nicely, and you know who this hurts? The middle class, which is getting shafted far worse than they ever got shafted in the Bush economy.

astonerii on July 29, 2011 at 9:51 AM

Flash: The August SS checks have already been mailed (Early!!)

faraway on July 29, 2011 at 9:54 AM

We need to require every economic estimate to come with a figure that shows the mathematical historical accuracy rate of the economist or entity providing the estimate.

For example if you analyzed all the Commerce Department’s published numbers for growth, would you find that a typical error rate is -50% (which seems to be true lately). So then they would have had to issue the Q1 number originally as “1.9% but corrected to .95%” then when this type of correction comes out, it’s not as shocking.

The problem is that media and economists claim a lot more accuracy and reliability than is warranted by their performance. In business, these types of results might well lead to an SEC fraud investigation.

Over50 on July 29, 2011 at 9:58 AM

Won’t it be wonderful that when there is finally an uptick in the numbers – no matter how small – we’ll all be told yet again of Obama’s brilliance in averting a catastrophe, etc?

“Yes, the numbers are small but at least they are growing.”

That kind of thing.

Won’t that be great?

catmman on July 29, 2011 at 9:59 AM

Do you not realize that this is no longer about Republicans vs Democrats? I got pushed off a cliff and I’m trying to place blame while in the air falling to my death. Jeez man, wake up… The political establishment is corrupted to the point of no return.

Keemo on July 29, 2011 at 9:27 AM

Right on brother!

SPGuy on July 29, 2011 at 10:00 AM

This is why the government is claiming to be collecting the lowest % of GDP in taxes that it has collected in over 60 years.
Oh, and some people will claim it is because the rich are not making as much money in this down economy. But the truth is that the rich made far more money in a shorter period of time than they did before. The number of millionaires and billionaires fully recovered already, and that money is taxable. The profits at many companies thanks to government handouts is higher than the past. GDP is down, rich are making money faster, and companies are profiting nicely, and you know who this hurts? The middle class, which is getting shafted far worse than they ever got shafted in the Bush economy.

astonerii on July 29, 2011 at 9:51 AM

I agree, but do wonder when the rich are going to go “all in” against Obama.

Those wealthy folks generally have T-Bill/Bond/Note and Muni bond holdings… which are now in danger due to a possible degrade in rating. Of couse Corporate Junk Bonds are doing well and tie into the current inflated market… but in general its the rubes and middle class who float the equity, as you said – while the wealthy sit back.

Odie1941 on July 29, 2011 at 10:01 AM

At least we know the Messiah can still turn water into w ur ine.

technopeasant on July 29, 2011 at 9:42 AM

Vashta.Nerada on July 29, 2011 at 10:02 AM

We need to require every economic estimate to come with a figure that shows the mathematical historical accuracy rate of the economist or entity providing the estimate.

For example if you analyzed all the Commerce Department’s published numbers for growth, would you find that a typical error rate is -50% (which seems to be true lately). So then they would have had to issue the Q1 number originally as “1.9% but corrected to .95%” then when this type of correction comes out, it’s not as shocking.

The problem is that media and economists claim a lot more accuracy and reliability than is warranted by their performance. In business, these types of results might well lead to an SEC fraud investigation.

Over50 on July 29, 2011 at 9:58 AM

Great point. Imagine every quarter, a public company CFO saying “well, for the 10th quarter in a row, we were 80% off on the earnings – .20, not $1… the lawsuits alone from asset managers would bankrupt them within 6 months.

Odie1941 on July 29, 2011 at 10:03 AM

Double Dip recession? I’m not sure we ever emerged from the first one.

carbon_footprint on July 29, 2011 at 10:05 AM

But at least we finally have a coherent energy policy that fully utilizes our national resources and will create good high-paying jobs while reducing our dependency on foreign oil!

Wait, what?

pain train on July 29, 2011 at 10:14 AM

carbon_footprint on July 29, 2011 at 10:05 AM

If you want reality, no we never did. If you want Failbama’s version, you get The economy is growing by leaps and bounds!

He claims to have created two million jobs, y’know. (Thats total BS too)

dogsoldier on July 29, 2011 at 10:16 AM

You get the gold star for the day! There never has been any recovery, they, the administration, have been playing with the numbers since Obozo started spending money.

How come all of his economic advisers and even the media are always surprised by the “UNEXPECTED” results of their predictions. If they didn’t play around with the numbers, then it would be a lot worse.

belad on July 29, 2011 at 9:46 AM

Yep.

j_galt on July 29, 2011 at 10:37 AM

The negotiations over debt reduction are about only one thing: How to maintain Trillion-dollar deficits until the private sector economy starts to borrow again and make it look like we’re addressing the debt problem!

2011 deficit will be around 12% of GDP. A 10% drop in GDP is a technical DEPRESSION, which all in government are trying to avoid being associated. So, whether we default and are unable to borrow that 12% of GDP to spend into the economy OR we agree on a ballanced budget and don’t spend that 12% of GDP, we get a DEPRESSION either way.

Pay no attention to how much in tax increases Republicans will finally agree to.

Pay no attention to how much in spending cuts the Democrats will finally agree to.

Pay attention ONLY to how much DEBT they agree to! I guarantee the next three years will each see twice the deficits of W’s worst, regardless of the “deficit reduction plan” eventually implemented.

shuzilla on July 29, 2011 at 10:50 AM

Pay attention ONLY to how much DEBT they agree to! I guarantee the next three years will each see twice the deficits of W’s worst, regardless of the “deficit reduction plan” eventually implemented.

shuzilla on July 29, 2011 at 10:50 AM

Another yep.

j_galt on July 29, 2011 at 10:52 AM

Shorter Associated Press:

“The emperor is naked”

BobMbx on July 29, 2011 at 10:56 AM

Flash: The August SS checks have already been mailed (Early!!)

faraway on July 29, 2011 at 9:54 AM

SS checks come out twice a month. Some around the 3rd and some around the third Wednesday.

Oldnuke on July 29, 2011 at 11:10 AM

SS checks come out twice a month. Some around the 3rd and some around the third Wednesday.

Oldnuke on July 29, 2011 at 11:10 AM

Correction! They actually get transmitted/mailed more than twice a month.

Oldnuke on July 29, 2011 at 11:20 AM

“The economy grew less than expected in the second quarter..”

..Ed, I think they are really consciously trying to use the un-adverb now. One can just imagine the worn, soiled pages of those thesaurii now.

The War Planner on July 29, 2011 at 11:28 AM

Unexpected? Read something last week that guessed a negative growth for this quarter. If they were off by 1.5% in Q1, then Q2 could be -0.2% when the final tally is released in Sep / Oct.

AH_C on July 29, 2011 at 1:06 PM

The market is an Inconvenient truth to marxists.

AH_C on July 29, 2011 at 1:12 PM

Faking a recovery is hard. People find the flaws in your analysis and you have to adjust things repeatedly to fix the FOUND lies you used to make things look better than they were. This is why the government is claiming to be collecting the lowest % of GDP in taxes that it has collected in over 60 years. Because the GDP is no where near as high as they are claiming. It is all a shell game.

astonerii on July 29, 2011 at 9:43 AM

This is a continuation of the failing economy of the United States. The massive S&L closures of the late ’80s, the state budget crises and hiring freezes also in the late ’80s, the trend of people moving back with their parents because they couldn’t make it on their own in the ’90s, the dot com bubble of the late ’90s.

Never in my life have I seen so much stuff for sale by the side of the roads around here…Bunch of houses, commercial lots, business buildings for sale and rent. Many businesses shut down. Pitiful.

But the Capitalist model is one of winners and losers and many of those failing businesses wouldn’t have made it anyway over the long haul. OK, but what happens when there is no employment elsewhere? What happens to millions of people that simply can’t find work, nor do they have a chance of starting a successful business? Capitalism doesn’t address that. This is where Socialism moves in and piles on to accelerate the disintegration.

Most businesses will not fail-most people will not lose their jobs. But what to do about those that do? Now you have less taxes and the need for more government assistance. A vicious cycle.

The market is an Inconvenient truth to marxists.

AH_C on July 29, 2011 at 1:12 PM

True, but it can also be a good indicator as to how well their Cloward-Piven strategy is working.

Dr. ZhivBlago on July 29, 2011 at 2:12 PM

Unexpected? Read something last week that guessed a negative growth for this quarter. If they were off by 1.5% in Q1, then Q2 could be -0.2% when the final tally is released in Sep / Oct.

AH_C on July 29, 2011 at 1:06 PM

Yeah, it’s a bit scary to think what 1.3% could be revised down to.

Not to be conspiratorial but I don’t remember GDP numbers getting revised by huge amounts like this in the past. Some adjustment yes, but 1.5 percentage points?

Django on July 29, 2011 at 3:23 PM

We are technically in a recovery now, but a historically weak one. It’s almost certain we will suffer the dreaded “double dip” recession soon, because the ridiculous federal spending blowout didn’t help the economy, it merely pumped up some parasitic sectors.

Adjoran on July 30, 2011 at 4:52 AM

…recovery!!…

Axeman on July 30, 2011 at 10:45 AM

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