Breaking: Q2 GDP 1.5%; Update: 2011Q4 revised upward 1.1 points to 4.1%?

posted at 8:34 am on July 27, 2012 by Ed Morrissey

The decline in American production continued in the second quarter, according to the new release from the Bureau of Economic Analysis.  The Q2 GDP growth rate (annualized) was a meager 1.5%, down from 1.9% in the first quarter and 3.0% in 2011Q4:

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 1.5 percent in the second quarter of 2012, (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 2.0 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 29, 2012.

The declines came in durable goods (down 1.0%), computers (0.07%), and federal government expenditures (0.4%), the latter of which was down 4.2% in Q1.

Inventories rose again, adding 0.32% to the final number, after having declined in Q1.  The real final sales of domestic product only came to 1.2%, half of Q1’s 2.4%.  Personal consumption expenditures only increased 1.5%, down from 2.4% in Q1 and pointing to a precipitous decline in demand.

Right now, the headline on CNBC is: “Economy Grew Faster Than Expected in 2Q, Up 1.5%”.  The futures market climbed a bit on the news, so that may not be far off:

U.S. stock index futures added to modest gains Friday, following a report that showed the economy grew at a faster-than-expected pace in the second quarter.

Expectations must have been pretty low for a 1.5% GDP to spark optimism.

Update: The AP is a lot less optimistic.  Their article has nothing more than a placeholder lead paragraph at the moment, but they emphasize the drop in consumer spending:

US economic growth slows to 1.5 percent annual rate from April-June, consumer spending weakens.

Maybe this is a good time to break out Barack Obama’s Mission Accomplished statements:

Oh, sorry — that last one wasn’t Obama, but you can understand how one might confuse it with the other statements.

Update II: Reuters actually takes a more cautious tone, reporting that the decline wasn’t as bad as expected, but doesn’t try to put any more positive spin on what is clearly a bad result.  They also note that the BEA has revised 2011Q4 to 4.1% growth, a rather eye-popping change from the already thrice-revised 3.0%:

U.S. economic growth slowed less than expected in the second quarter as consumers spent at their slowest pace in a year, potentially pushing the Federal Reserve closer to pumping more money into the economy.

Gross domestic product expanded at a 1.5 percent annual rate between April and June, the weakest pace of growth since the third quarter of 2011, the Commerce Department said on Friday. Consensus estimates forecast growth at a 1.3 percent pace.

First-quarter growth was revised up to a 2.0 percent pace from the previously reported 1.9 percent. Output for the fourth quarter was raised to a 4.1 percent rate from 3.0 percent.

I’d like to get an explanation of that upward revision.  A change from 1.9% to 2.0% might be reasonable, even after the BEA stated the figure three different times.  But the jump from 3.0% to 4.1%  in one revision six months after the fact looks very, very odd.

Update III: Zero Hedge has a graphic to show the revisions made in this report over the past year, and adds this thought:

And just as important, today the BEA revised historical GDP data retroactively. Of note 2010 GDP was revised from 3.0% to 2.4%, while Q3 2011 GDP was revised from 3.0% to 4.1%, indicating that the slowdown we are experiencing is in fact far worse than previously expected. It also shows that HFT trigger buying or selling on GDP data is completely meaningless as today’s data will be revised violently higher or lower in a year, making it completely irrelevant.

Except for 2011Q1 and Q3, all the revisions were upward — and that makes this decline look even worse.

Update IV: However, as Bloomberg points out, the rest of the revisions make the recovery look even weaker than the BEA’s previous numbers showed:

With today’s release, the Commerce Department’s Bureau of Economic Analysis also issued revisions dating back to the first quarter of 2009. The changes showed the first year of the recovery from the worst recession in the post-World War II era was even weaker than previously estimated.

GDP grew 2.5 percent in the 12 months after the contraction ended in June 2009, compared with the 3.3 percent gain previously reported, the Commerce Department said.

But, y’know … his plan worked.

Update V: I made an error on the chart description — there were downward revisions to both 2011Q1 and Q3, not just Q1. I’ve fixed it above.

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