While the second quarter is now ancient history and the debate is how much the predicted rebound in Q3 GDP will fade into Q4 which is set to begin in just three days, moments ago the BEA released its final revision for Q2 GDP, according to which real GDP increased 1.4% in the second quarter of 2016, 0.3 % higher than the “second” estimate released in August, and fractionally higher than the 1.3% expected. In the first quarter, real GDP rose 0.8 percent.
As we have reported previously, the increase in real GDP was more than accounted for by an increase in consumer spending which amounted to more than 200% of the bottom line annualized GDP print. Spending on nondurable goods increased, notably on food and beverage grocery items. Spending on durable goods increased, notably on recreational goods and vehicles. And spending on services increased, notably on health care (thanks Obamacare) and on housing and utilities.
The increase in consumer spending was offset by a decline in inventory investment. GDP less inventory investment (real final sales of domestic product) increased 2.6 percent in the second quarter, compared with 1.2 percent in the first quarter. Also partly offsetting contributions to real GDP growth in the second quarter, housing investment declined, as did state and local government spending.
Perhaps most notable was the data on corporate profits, which as expected, were down -0.6% in Q2, after increasing 3.4% in the first quarter. and have contracted for fifth time in past 6 quarters. Profits of domestic nonfinancial corporations decreased 4.6% after increasing 7.4 percent. Profits of domestic financial corporations increased 1.3 percent after increasing 1.9 percent. Profits from the rest of the world increased 10.3 percent after decreasing 6.8 percent. Over the last 4 quarters, corporate profits decreased 4.3 percent
Expect further margin compression on policy changes.
Putting the US economy data in context, over the last 12 months real GDP continues to drop, sliding to 1.28% even with the modest upward revision, and has been below 2% in the last three quarters.
Using the latest NY Fed forecasts, which as a reminder now expects just 2.3% annualized growth in Q3 and 1.2% Q4, down 0.5% each from the previous forecasts of 2.8% and 1.7%., the US is set to grow at just 1.4% in 2016, the slowest growth rate since the financial crisis.