Q2 GDP Revision Better But Doesn't Meaningfully Change Prospects For Q3
Stone & McCarthy just posted a brief interpretation of the better-than-expected 3rd revision to Q2 GDP noting that the magnitude of revisions do little to improve expectations for Q3. Key takeaways include: Upside Q2 GDP revisions driven in large part by PCE Services; Inventories revised downward setting stage for Q3 restocking; and Q3 GDP looks to be in the 2.5% area. Little wonder markets are hardly overwhelmed and talking heads aren't spinning this into 2012 recovery and Fed Funds futures didn't budge - though for now ES keeps pushing higher into the open - though admittedly feeling squeezed right now by the apparent slew of better-than-expected news - brought to you via Sesame Street and the letter 'J': [J]ermany, Jobs, and [Jee]DP.
Via Stone & McCarthy:
The Third Estimate of Q2-11 GDP revealed a 1.3% rate of gain up from +1.0% per the Second Estimate, and the same as the 1.3% per the Advance estimate.
The revisions that were incorporated into the Third estimate do not materially change the outlook for Q3 GDP. Inventories were revised downward slightly making the case for more restocking in Q3, but the downward revision was small enough that such should not materially change the Q3 outlook from what appeared to have been on track.
While we look forward to digesting a bit more of the Q3 data in the weeks ahead, we think Q3 GDP is shaping up to be in the 2-1/2% zone.
There were 3 GDP components that drove the 0.3% upward revision.
(1) The contribution from the PCE for Services was revised upward from +0.64% to +0.87%, adding 0.23%.
(2) The Nonresidential Structures contribution was revised upward to +0.54% from +0.38%, adding 0.16%.
(3) The contribution from Net Exports was revised upward to +0.24% from +0.09%, adding 0.15%.
There were small declines in the contributions from Equipment & Software (-0.11%), Inventories (-0.05%), and the PCE fof Goods (-0.5%).
GDP growth over the first half of 2011 was a disappointing 0.9%, we look for the second half to do somewhat better at 2% to 2-1/2%, certainly far from robust.
The earlier downward revisions to GDP from the annual benchmark revisions released in late July, and the associated downward revisions to Productivity, suggest that maybe the trajectory of Potential GDP is somewhat lower than earlier thought. This may mean that our yardsticks by which we evaluate the appropriateness of GDP growth should be adjusted accordingly.
Not exactly an optimistic tone - especially in light of last night's perspective from Citi on global growth.
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