US GDP comes in at minus 1%


Down 1.5% was the consensus expectation. But Q1 was revised down to minus 6.4% from 5.5%. The GDP Deflator for Q2 came in at 0.2%, which shows that disinflation risks tipping into deflation still.  The dollar is weaker and the short end of the treasury curve is up massively on these data and revisions.

Also, as I indicated Wednesday, the 2008 numbers were revised down. Q1 2008 was revised from positive 0.9% to negative –0.7%. Q2 2008 was revised way down as well from 2.8% to 1.5%.  Q3 2008 was also very negative, now –2.7%. This confirms the December 2007 recession call.

There was a $140 billion reduction in inventories in Q2.  I have been saying for some time that this would set us up for lots of upside come Q3 and Q4 as the inventory purge dissipates.  So, we will get a technical recovery in my opinion. The question is whether there is any underlying demand uptick behind the inventory changes. In the data below from the BEA website, you can clearly see highlighted in red on the right that consumers are not even spending on basic items.  Spending on non-durable goods was down 2.5% annualized.  That is not good.

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My overall take here is this:

  • The downward revisions to 2008 should have been expected. They confirm how deep the mild depression was.  It started in December 2007, creating a weak economy early in 2008, and only intensified due to the meltdown post-Lehman.  Those like Larry Kudlow who were saying well into 2008 that no recession was going to occur were misguided.
  • Because inventories have been purged so much in Q1 and Q2, I fully expect much better numbers in Q3 and Q4.  Remember, a less negative inventory number translates into a net ADD to GDP.  So, we don’t need to build inventories, only purge them less.  That’s a guarantee for Q4 if not Q3.
  • However, the fly in the ointment is consumer demand. It  is still weak.  Look at non-durable spending.  If we don’t see a significant uptick come Q3, you should be worried.
  • My call for Q4 2009 or Q1 2010 end to the recession still stands.

BEA release:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 1.0 percent in the second quarter of 2009, (that is, from the first quarter to the second), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 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 27, 2009.

The estimates released today reflect the results of the comprehensive (or benchmark) revision of the national income and product accounts (NIPAs). More information on the revision is available on BEA’s Web site at, including links to an article in the March 2009 issue of the Survey of Current Business that discussed the changes in definitions and presentation that have been implemented in the revision and to an article in the May Survey that described the changes in statistical methods. The September Survey will contain an article that describes the results of the revision in detail. The Web site also contains FAQs and other information about the revision.

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