US GDP on Verge of Contraction in 1st Quarter, Mere 1.3% Annual Rate 2nd Quarter; Summary of Massive Revisions; Second-Half Recovery Nonsense

The stunner of the day is not only an anemic 2nd quarter GDP of 1.3 percent annualized, but of huge revisions all the way back to to 2007.

Please consider Economy in U.S. Grows Less Than Forecast

Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, rose 0.1 percent.

“The second-half rebound is melting away,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, the only forecaster polled to correctly estimate the gain in GDP.

Revisions to GDP figures going back to 2003 showed that the 2007-2009 recession took a bigger bite out of the economy than previously estimated and the recovery lost momentum throughout 2010. The world’s largest economy shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1 percent drop.

Summary of Revisions

• For 2007-2010, real GDP decreased at an average annual rate of 0.3 percent; in the previously published estimates, real GDP had increased at an average annual rate of less than 0.1 percent.
  
• From the fourth quarter of 2007 to the first quarter of 2011, real GDP decreased at an average annual rate of 0.2 percent; in the previously published estimates, real GDP had increased at an average annual rate of 0.2 percent.
• The percent change in real GDP was revised down 0.3 percentage point for 2008, was revised down 0.9 percentage point for 2009, and was revised up 0.1 percentage point for 2010.
• The revisions to the annual estimates for 2008 and 2010 reflect partly offsetting revisions to the quarters within the year. For example, for 2010, the annual rate of change in GDP was revised up 0.2 percentage point for the first quarter and was revised up 2.1 percentage points for the second quarter, while the growth rates for the third and fourth quarters were revised down 0.1 and 0.8 percentage point, respectively. The downward revision to the change in real GDP for 2009 reflects downward revisions to the first and fourth quarters.
• For the 13 quarters from the fourth quarter of 2007 to the first quarter of 2011, the average revision (without regard to sign) was 0.9 percentage point. The revisions did not change the direction of the change in real GDP (increase or decrease) for any of the quarters.
• For 2007-2010, the average annual rate of growth of real disposable personal income was revised down 0.6 percentage point from 1.2 percent to 0.6 percent.
• From the fourth quarter of 2007 to the first quarter of 2011, the average annual rate of increase in the price index for gross domestic purchases was revised up from 1.4 percent to 1.6 percent. The average annual rate of increase in the price index for personal consumption expenditures (PCE) was revised up from 1.6 percent to 1.7 percent, and the increase in the “core” PCE price index (which excludes food and energy) was revised up from 1.5 percent to 1.6 percent.
• National income was revised up 0.4 percent for 2008, was revised down 0.6 percent for 2009, and was revised up 0.1 percent for 2010.
• Corporate profits was revised down 1.1 percent for 2008, was revised up 8.3 percent for 2009, and was revised up 10.8 percent for 2010.

The above summary is from the BEA Gross Domestic Product: Second Quarter 2011 (Advance Estimate)

Chart of Revisions

Doug Short has a chart of revisions in his post GDP Q2 Advance Estimate: A Stunning 1.3 Percent



click on chart for sharper image

Second-Half Rebound Melts Away

Economists did not see this coming. They never do. Economists in general cannot see a slowdown coming no matter how obvious the slowdown is. Quite frankly, this slowdown was damn obvious.

Moreover, given budget constraints in the US including cutbacks at city and state levels, given Europe will soon be in recession in conjunction with various austerity measures (assuming Europe is not in recession already), given a slowdown in China, and an outright economic bust in Australia, the idea of a huge second-half surge is complete silliness.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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