GDP Shocker: US Economy Grew Only 1.2% In Second Quarter; Q1 Revised To 0.8%

Tyler Durden's picture

With Wall Street expecting the US economy to grow 2.6% in the second quarter, there were many shocked faces moments ago when the Census Bureau reported that not only did the US economy grow a paltry 1.2% in the quarter, but Q1 GDP was slased from an already poor 1.1% to just 0.8%.

A breakdown of the underlying data via Bloomberg:

For the first quarter of 2016, real GDP is now estimated to have increased 0.8 percent; in the previously published estimates, first-quarter GDP was estimated to have increased 1.1 percent. The  0.3-percentage point downward revision to the percent change in first-quarter real GDP primarily reflected downward revisions to residential fixed investment, to private inventory investment, and to  exports that were partly offset by upward revisions to nonresidential fixed investment, to PCE, to state and local government spending, to imports, and to federal government spending.

Just as bad, strong historical GDP reports such as the 3.9% alleged growth in Q2 2015 which served as the springboard for the Fed's rate hike rhetoric in mid-2015, was slashed to a far lower 2.6%.

As of this moment, the economy has grown at less than a 2% pace for three straight quarters. Since the recession ended seven years ago, the expansion has failed to achieve the breakout seen in past recoveries. The average annual growth rate during the current business cycle remains the weakest of any expansion since at least 1949.

The reason for the dramatic cuts: historical revisions going back to Q1 2013. From the BEA:

Updated estimates of the national income and product accounts (NIPAs), which are usually made each July, incorporate newly available and more comprehensive source data, as well as improved estimation methodologies. This year, the notable revisions primarily reflect the incorporation of newly available and revised source data. The timespan of the revisions is the first quarter of 2013 through the first  quarter of 2016. The reference year remains 2009.

It now appears that at a time when the US economy was said to be approaching escape velocity for a rate hike, it was in fact contracting. According to the latest data, in Q4 when Yellen announced the Fed's first rate hike, the growth trend economy was in fact decelerating, growing by only 0.9%, the lowest since Q1 2014.

Some more details:

  • Core PCE 1.7%, far below Q1's downward revised 2.1%
  • GDP deflator: 2.2%, Exp. 1.8%, and up from 0.5%

From the BEA:

Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent (revised).

 

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE) and exports that were partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

 

The acceleration in real GDP growth in the second quarter reflected an acceleration in PCE, an upturn in exports, and smaller decreases in nonresidential fixed investment and in federal government spending. These were partly offset by a larger decrease in private inventory investment, and downturns in residential fixed investment and in state and local government spending.

There was some good news in the report: In the second quarter, consumer spending rose strongly. Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 4.2% rate, the best gain since late 2014. Outlays on goods advanced 6.8%. Spending on services climbed 3%. As part of the revision, a major adjustment was the contribution from Housing and utilities, which in Q2 supposedly added $43 billion to Personal Consumption, while Healthcare, traditionally the best performing category, only added $28.4 bilion. We are confident this number will be revised shortly again.

However, nonresidential fixed investment, a measure of business spending, declined at a 2.2% pace, the third straight quarterly drop. Companies spent less on buildings and equipment.

It appears capex matters.

Weak business investment is confirmation that firms don’t have confidence in the global economy. Manufacturers especially have been challenged by a strong dollar, which makes U.S.-made goods more expensive overseas. The energy industry has also been constrained with relatively low oil and natural gas prices curtailing investments in mining and wells.

Firms also paired back inventories sharply. The change in private inventories subtracted 1.16 percentage points from overall growth. That was the category’s fifth-straight decline and the largest drag from inventories in two years.

We will breakdown the revised numbers shortly, but with this latest data in the Fed's hands it looks like any rate hike hopes for September, or any time soon for that matter, were just crushed.

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SallySnyd's picture

Here is an article that explains why it will be nearly impossible for the U.S. economy to show significant positive growth over the coming months:

 

http://viableopposition.blogspot.ca/2016/07/global-trade-central-bankers-dilemma.html

 

Despite the “heroic efforts” of the world’s central bankers, the global economy continues to stagnate.

StackShinyStuff's picture

Bwaaaahaaahaahaaaa!  No wait, this means stocks go up? Fuck...

Haus-Targaryen's picture

With a shrinking work force and an expanding monetary base -- I am shocked we have any real growth what-so-ever.

GunnerySgtHartman's picture

Frankly, I question how much of that 'real growth' is actually real ...

MillionDollarBonus_'s picture

At least the economy is growing, unlike during the financial crisis of 07-08, which was precipitated by lack of regulation under a republican administration. Under Obama, our economy has continued to grow steadily, while our stock market has made new all time highs and interest rates have made record lows. This is not an accident - Obama is an exceptional president who has followed the advice of the world's leading economists. If we want this to continue however, then we simply have to elect Hillary Clinton in November.

Accredited Times
GunnerySgtHartman's picture

MDB is really high on the kool-aid today.

BaBaBouy's picture

GDP Plunge... Apparently NOT Enough Omaba Food Stamps Printed For The Quarter ~~~

NoDebt's picture

They're suppressing the numbers so when Q3 GDP is reported just before the elections it'll print a +4.0%

 

JamesBond's picture

Which means it will likely be revised further downward to .9 when all is said and done.

Recession lingers on.

 

TradingIsLifeBrah's picture

If they could only stretch the fake number to 1.2%, imagine how far the economy has actually contracted.  Time for real change, Trump 2016

AGAU's picture

Real change happens when people stop handing their personal sovereignty on a plate (by voting) to some psychopathic entity in the hope that this will fix your world, only you can fix your world. Your could start with a decimation of your federal government, only problem is you've left it quite late and by now there are no easy solutions, but by all means vote for one of the candidates if that makes you feel useful.

Bill of Rights's picture

Actually your wrong but I wont bore you with facts you're way to dumb to accept facts, actually your helpless.

Paul Kersey's picture

If possible, the Main Street American economy is even less vibrant than Hillary Clinton's sex life.

LawsofPhysics's picture

Comedy Gold!

 

Ben Bernanke was VERY clear in his "Exit Strategy" paper. He said; "Once unemployment is below 6.5 % we will normalize rates"...

Well, we are waiting....

TICK TOCK....

thinkmoretalkless's picture

That's the question. "Do you want this to continue?"

MFL8240's picture

After inflation, there is negative growth!

geno-econ's picture

Delusional.  The only thing that has grown is the Clinton Foundation and national debt

moneybots's picture

Fantastic Sarchasm.  In book form your collection of sarchastic comments could be a million dollar seller.

ejmoosa's picture

A stagnant economy with less profits every quarter for the effort.

Just what the socialists have planned for.

 

http://ejmoosa.com/blog3/2016/07/29/worsening-economic-conditions-wheres...

Philo Beddoe's picture

Real growth? Reported Real Growth. Actual growth? Who the fuck knows? 

DownWithYogaPants's picture

Welcome to ObamaVille.  Population = YOU! 

Arnold's picture

Honest,

I was just standing right there, and a snowflake just melted next to me.

yogibear's picture

Yes, with the Fed and it's other Central banksters it more negative rates, helicopter money. Anything to keep the 1% from going negative. Even if it means impoverishing the 99%.

Raincheck's picture

The central banks are the ONLY things that matter in a make believe world.

Paul Kersey's picture

Pull out Government subsidized mortgages, Obamacare and defense spending, and the GDP would be wildly negative. Welcome to a Soviet styled government driven economy.

venturen's picture

This can only be cured by Obama being named President for Life!!!

 

Castro will hold Mao little red book for Obama to be sworn in!

MFL8240's picture

This is the Obama/Clinton economy that the criminal media has been hiding!

RawPawg's picture

who's peddling now?

onewayticket2's picture

"Shocker?"

 

I'm surprised it's north of 1%....

pods's picture

Adjust it for real inflation and it is a negative.

Life sucks when Stagflation is the new "killing it."

More with less has been our work motto for a couple of years now.

pods

Jim in MN's picture

Like it's any big surprise here at ZH.  We mumble about a lot of things, but the bottom line is this: 

Expect ZERO REAL RETURNS across all asset classes in the mid to long term.

You get to keep what you put in, if you're lucky.  Oh but that means you need to adjust savings up and consumption/debt down to compensate.

And, stay diversified.  They will come for each nest egg, but usually only one at a time.  Try to preserve as much as possible in each nest, but in the end, diversification with low return expectations is the ordinary person's safest play.

May God bless our fair Republic and grant us the courage to preserve her.

DogeCoin's picture

More fiction being peddled by the Commerce department. Tsk tsk, don't they know that Emperor Obama has mandated that this is a 2% economy?

redd_green's picture

Obama has little to do with it, not that he's any good, he's not.   This stuff has been going on for decades.  Decades.

Jim in MN's picture

Didja ever take a long term chart of the DOW or S&P, take off the logrithmic scale and just LOOK at the linear scale chart?

You can see in the abrupt doubling of the growth trend the first big assault on normalcy in the early 1980s (the Reagan-Tip O'Neill Gucci Gulch tax reforms and financial deregulation) and then the even more pronounced ramp in the 1990s (the 'pinstripe Democrats' under the Clintons and Rubin going for it all--total financial anarchy dressed up as oligopoly).

Jim in MN's picture

Holy shit, I just noticed that all the major financial sites no longer show Dow data from before about 1985.  What the fuck is this shit???

 

Hang on....I'll find it somewhere.   They really are intent on keeping us stupid it seems.

 

Tylers, if you'd like a post about this I will happily oblige...but it's not hard to write if you know what to look for.

Jim in MN's picture

OK, take this chart, for all years and turn OFF log scale and turn OFF inflation-adjusted.

http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

Sheesh, used to do it on Yahoo! Finance.  Whatever.

redd_green's picture

Who in their right mind would believe the USA has had real GDP growth in decades?  THe factories are STILL CLOSING folks.  GDP, Unemployment, Inflation numbers are all crap.    The only thing growing in teh USA is population, from immigration (not all bad), while solid US businesses pack up and run for Malaysia, Singapore, China, Mexico, ...    When they close they take high paying manufacturing jobs with them.     Why do we constantly have these stupid articles that quote GDP growth?   Its a complete lie.

jewish_master's picture

the growth was in 1% assets and little economic activity from that. this asses growth was esseintially milking the wealth through fiat money and debt from the masses, drip by drip. however we are in the end of this process now - the poor masses have been stripped of all wealth. they largly have nothing left to be milked. 50% of young 25 living in basment, so now the rich assest economy have stopped growing as well cause the cow has died. and that what we see in GDP. but to say the economy grew since 2008 for the majority of ppl is a big fat statistical lie.

SomethingSomethingDarkSide's picture

Isn't inflation "dead in the water"?

 

... LOL

LawsofPhysics's picture

Sure, that must be why so many cities have rent control laws...

 

The fucking lies and collusion are becoming pretty fucking blatant now.

achmachat's picture

I want to watch those guys on TV arguing with Peter Schiff, trying to explain how the fed is going to raise rates now!!

 

ejmoosa's picture

The Fed was raising rates as we entered the last recession as well.  

No one should be surprised.

Except the Fed.

 

The only bullshit data left that is false is the Jobs number.  Now for God's sake, break that sucker out by Full and part time jobs, BLS.

You are only fooling yourselves.

LawsofPhysics's picture

Yep, remember Ben Bernanke's "Exit Strategy"...

"We will begin to normalize rates when unemployment is below 6.5"....

Well, we are waiting motherfucker.

onewayticket2's picture

they live in a bubble....it's AWESOME in DC.....money is flowing like wine....to them and their friends.....all they hear is how great it is....

 

love,

Cronyism

 

CORRUPTION/KAINE 2016

fattail's picture

I was in DC earlier this year and counted 18 condo cranes.  Everything is Awesome!!!

ejmoosa's picture

Here is what they are not publicizing:

They also revised Corporate profits before and after taxes dating back to the first quarter of 2013.

With these revisions, we have now had 7 consecutive quarters of with profits after taxes declining YOY through the first quarter of 2016.

We have also now had 4 consecutive quarter of profits before taxes declining YOY for the first quarter of 2016.

That is the sign of a very sick economy.

 

NDXTrader's picture

So my lying eyes haven't been deceiving me

SomethingSomethingDarkSide's picture

Your eyes are fictional, and they are truthfully displaying imaginative thoughts