Final Q2 GDP Surges 4.6% Thanks To Profit Definition Change; Personal Consumption Weaker Than Expected

Tyler Durden's picture

The good news in the just released final Q2 GDP estimate soared by 4.6%, just as Wall Street expected, which was the biggest quarterly jump since 2011 Q4 2011, driven by gains in business spending, where mandatory forced Obamacare outlays led to a $17.5 billion chained-dollars increase in Healthcare spending to $1815.9 billion. Nonresidential fixed investment contributed two-tenths to the revision, net exports contributed one-tenth, and consumer spending contributed one-tenth. Also helping were corporate profits which rose 8.4% in Q2, the most since Q3 2010, once again courtesy of adjustment in definitions (recall the IVA vs CCAdj change we discussed previously). 

From the report: "Profits from current production (corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)) increased $164.1 billion in the second quarter, in contrast to a decrease of $201.7 billion in the first." For the explanation read "Is This The Top? First Quarter Corporate Profits Tumble Most Since Lehman." The definition change was responsible for a drop in Q1 profits which has now shot right back up. This is what Goldman said back then:

The decline was driven by statistical adjustment factors. The first reason is that the decline in corporate profits as measured in the national accounts mostly reflects the capital consumption adjustment factor estimated by the BEA to account for the effect of the expiration of bonus depreciation at the end of 2013.


Q1 weakness should be temporary. Growth and productivity were unusually weak in Q1, which likely weighed on profits, but both should strengthen going forward. As we argued recently, Q1 weakness was mostly driven by temporary factors, while more recent data suggest that the acceleration is intact.

Visually, this is how it all came down:

Obviously, this bounce was a much needed rebound from the -2.1% drop reported in Q1 due to "harsh weather", yet one wonders what new and improved changes in definitions and/or mandatory government wealth redistribution programs the BEA will reveal in coming quarter to keep the pro-forma economic growth steady.

The bad news is that, once again, the much anticipated US consumer renaissance, has been delayed, with Personal Consumption, which was supposed to rise 2.9%, instead printed at a final number of 2.5%. In fact the 1.75% (as a percentage of the final total 4.6% Q2 annualized increase) was barely above the 1.5% average from the LTM period as of Q1.

So with Q2 in the books, and with both Obamacare, and the profit definition kitchen sinks already thrown in, we sit back and look forward to how the upcoming "harsh winter" crushes Q1 GDP once again, because the New Normal may be different, but snow sure rhymes.

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Shizzmoney's picture

Remember, it's still a "miss" because in an actual recovery, this should be at around 6-7%

They can't even hit the targets when they manipulate the data!

Sudden Debt's picture

in a actual recovery you don't need to change the math every year.

max2205's picture

You can't beat the people who make up the numbers

madcows's picture

both physically and competatively.

mkkby's picture

4.6 is pretty scorching hot.  Recession talk is over.  QE is over.  No excuse to keep rates glued to zero.

Hey yellin, get the fuck out of the markets NOW.

astoriajoe's picture

i'm sure they are just as susceptible to lathed hardwood as the next guy.

Hal n back's picture

do not forget last years change for recognizing R&D, IP and things like e books and i tunes.

I thought R&D and IP if good research resulted in brisk  production and sales which is also in GDP. Hmmm.

VAD's picture

Give me a baseball bat and I'll prove you wrong.

Dr Strangemember's picture

WeLcOmE tO tHe DeFiNiTiOnAl FuN hOuSe!!!!!!!!!!!!!!!!!!!!!

GetZeeGold's picture



Definition Change


Heh heh.....yeah.

Sudden Debt's picture

If you change the definition of Greenpeace and ISIS, you'll see that they're actually quite the same!!!

McCormick No. 9's picture

Yaeh, I'm familiar with this game...

Define "adultery". A blowjob isn't adultery, is it?

Define "income". Cash isn't income!

Define "theft". If I plan on bringing it back after I've used it, what's the problem?

Sudden Debt's picture

A blowjob isn't adultery if the woman giving you the blowjob doesn't asks you to put out the trash right after she's done.

Winston Churchill's picture

Depends on your definition of isn't.

Does your wife concur ?

Dr Strangemember's picture

Hmmmm???  Don't you mean you ask (pay) the trash to leave when done?

Dr. Engali's picture

The iCrap 6 plus will save us. As far as personal consumption goes, Merikans have never been fatter. I think they're about to capsize the continent. 

Sudden Debt's picture

and if that doesn't work out...

how did the google glasses and the iWatch do actually?

is there still a waiting line for those?

Do I need to sleep outside the store for 2 weeks to get one of those?

1stepcloser's picture

next change, if you're surfing a product its a considered a sale..

madcows's picture

I'm pretty sure they've already done that with the last update.  Something like adding non-traditional GDP.  Things like internet services, and blowjobs.

lester1's picture

This GDP "growth" is all lies. How much of it is tied to the FED's QE and ZIRP stimulus ????

buzzsaw99's picture

You take the blue pill - the story ends, you wake up in your bed and believe corporate profits are whatever you want them to be.

pods's picture

Well I don't know about y'all, but this makes me feel better.

iPhone 6bm (bendable, microwavable) all around!


Dr. Engali's picture

iPhone 6bm (bowel movement) which I'm sure there were many of once people realized what a piece of crap they bought.

StupidEarthlings's picture

Don't forget submersible ..if you download the upgrade. 


Smegley Wanxalot's picture

What a fucking clown show.  Q2 sucked just as bad as Q1 ... but there is an election coming up, so the dickhead pols need their lies to spew.

madcows's picture

yup, electioneering is alive and well.

I'm betting unemployment drops to 2%

BraveSirRobin's picture

Nope, I bet -5%. Then we will really, really have to import all those foreigners to take jobs that Americans refuse to do, like software develpers, systems engineers, commercial, retail and civil construction, biologists, docotrs, and now, apparently, military personnel.

Why Microsoft, Hewlet Packard (100,000 announced US lay offs) and the Pentagon (38,000 forced reduction in force of active duty military personnel - that is) all figured out Americans just will not do these jobs and absolutely need foriegn worker, legal, not legal, it does not matter, as long as they are not US citiizens, who will not do these jobs.

arby63's picture

That's a fact. You can see the shrinking business climate everywhere you go. Small biz is in the shitter for the most part. Q2 showed no increase in reality. These numbers are a pack of fabricated lies and everyone knows it.

Has anyone taken the time to really poll the true sentiment and financial health of average Americans? This is a ticking time bomb being played out in slow motion.

I certainly don't know what is next but the economy is shrinking all around us. These new sub-prime auto loans will soon come haunting as well. What's the average number of months an "unqualified" buyer can hold on before the repo man comes to call?

Strip malls empty. Big malls empty. Nothing but chain stores scattered across America. No heart and no soul. All fraud with a trail that leads right to Wall Street.

Investment bankers have even fucked up the firearms industry with their attempted consolidation. It's all a big mess.

Nick Jihad's picture

And the economy is to keep on shrinking, at least in so far as my contribution to it. The harder I work, the more there is for them to steal.

BullyBearish's picture

"We MUST normalize!" This proves it.

q99x2's picture

WWIII  is good for the economy and helps save lives..

ersatz007's picture

WWIII - Saving Lives by Getting Rid of Them!  

Coming soon to a planet near you.  

ejmoosa's picture

You can cut out all of that noise by looking at corporate profits after taxes.  That is why we do what we do, after all.

Go to Section 1

Table  1.12

Look at line 15.

Corporate profits after taxes were down more than 8% from the same quarter one year ago and down 3.18% over the last 12 months.

One other note-you cannot pay off debt with GDP.  It can only be paid by three things: Business income, personal income, or inflation.

The first two are shrinking and are beyond the control of the Government.  That only leaves inflation...


GeezerGeek's picture

Under communism there are no corporations, therefore the term 'corporate profits' is meaningless. The USSA is headed there (some would call it fascism) but we cannot get there immediately without upsetting too many of the sheeple. Little by little we will fundamentally restructure the USSA and eventually arrive at a collectivist utopia, where we, who know what's best for everyone else, will make sure the plebes are well controlled, er, I mean cared for.

We don't need no steenkin' corporate profits!

mkkby's picture

... but profit BEFORE TAXES was up.  Businesses need to be better at tax planning, such as laying off anyone who works over 30 hours and forces you to pay ridiculous shit like bro care.

papaswamp's picture

Well, total debt ( personal, corporate and govt) is around $60 trillion, and the Q2 value was $17.328 Trillion ... Thus debt to GDP was a mere 346%. Yep all is well.

yogibear's picture

The Fed's answer will be to print even more. If it's broken, just hit it with a bigger hammer to fix it.

sbenard's picture

Wow! Thank goodness for all those "intangibles" they add in now!

Notsobadwlad's picture

I see ... now, not only are corporate profits (cough AAPL) mainly driven by labor arbitrage, Gross Domestic Product increases are now driven by mark-to-market accounting.

How exactly is gross domestic product increased when inflation is the main driver. I thought GDP was supposed to be net of inflation?!?

Lol ... guess not if the fate of the government parasites is dependent on it.

VAD's picture

Does anyone believe any of these numbers any more?  Public and private balance sheets are so thoroughly massaged as to be meaningless.  Yeah, base your investment decisions on

agstacks's picture

I'd love to see an article reviewing all the changes to GDP calculations over the years.

Yen Cross's picture

  Yeah...There' so much pull forward demand that I'm seeing fucking Christmas shopping commercials on TV at the end of August and HARP commercials being pimped until I'm blue in face.


NotApplicable's picture

Boy, that was close! Recession avoided once again.

starman's picture

But what about the red carpet stalker?!

What I'm in the wrong blog sorry.

notadouche's picture

Things are supposed to be going so well economically speaking yet the local schools are requesting more donations of the "essentials" like clothing,food, etc.. than at any other time I've seen in the last decade.  Hmmm.. 

ejmoosa's picture

Imagine if the GDP was reported every six months versus every three months?

What would they headline be then?

GDP plummets.

The time frames are arbitrary.  It's the longer term trends that matter.  

Grouchy-Bear's picture

+4.6 - BullCrap...

They just Ate The Horse You Rode In On...

Make_Mine_A_Double's picture

Remove the + sign and replace with a negative - i.e. - 4.6% and you have an accurate figure.

Absolutely no question the real economy is in a tailspin and it's excellerating. This is just unicorn farts for the CNBC crowd and the sheepeople. And why not? It's worked for 6 years.

All in place for the November mid terms. That is the only point on the compass these fucks are focused on.

In terms of persception and how laughable these figures they are beyond caring - why hide when no one calls you on it?