Q2 GDP Misses, Q3 2016 - Q1 2017 All Revised Lower, Core PCE Tumbles

In the latest double negative whammy for the economy, not only did Q2 GDP print fractionally less than expected, at 2.6% vs consensus expectations of 2.7%, but Q1 GDP of 1.4% was also revised slightly lower, from 1.4% to 1.2%, while the Fed's favorite inflationary metric, core PCE, tumbled from a downward revised 1.8% to 0.9%.

PCE rose 2.8% and was the biggest contributor to growth. Business investment, net exports and federal government spending were also positive. Inventories, residential investment and state and local government spending were drags on growth

The BEA also released its annual update of GDP figures using "newly available and revised source data" for the 2014 - 2016 period. From the fourth quarter of 2013 to the first quarter of 2017, real GDP increased at an annual average rate of 2.1 percent, the same as previously estimated. For all of 2016, GDP was revised down slightly to 1.5%, from 1.6% previously. For 2015, growth was revised from 2.6% to 2.9%. for 2014, GDP was revised to 2.6 from 2.4% previously

Of note: GDP prints starting in Q3 2016 and through Q1 2017 were all revised lower. One amusing finding here is that following the revisions, Q3 2014 GDP is now said to have been 5.2%, while that abysmal Q1 2015 GDP print which was blamed on the weather is now 3.2%.

As part of the revision, personal consumption got a boost last quarter, when it was revised to 1.9%, while the Q2 number was a solid 2.8% as noted above. The GDP price index rose 1% in 2Q after rising 2.0% prior quarter.

The closely watched by the Fed core PCE q/q rose 0.9% in 2Q after rising 1.8% prior quarter, suggesting lower for longer will persist indefinitely.

The second-quarter increase in real GDP reflected increases in both consumer spending on goods and services as well as increases in business investment, exports, and federal government spending. The increase in consumer spending was led by increases in housing and utilities, health care, and recreational goods and vehicles. The increase in business investment reflected increases in all three components: structures, equipment, and intellectual property products.

Offsetting these increases in real GDP were declines in housing investment, inventory investment, and state and local government spending.

Specifically, final sales to private domestic purchasers q/q rose 2.7% in 2Q after rising 3.1% prior quarter. Nonresidential fixed investment, or spending on equipment, structures and intellectual property rose 5.2% in 2Q after rising 7.2% prior quarter.

Real disposable personal income—personal income adjusted for taxes and inflation—increased 3.2% in the second quarter after increasing 2.8% in the first quarter. Personal saving as a percent of disposable personal income was 3.8% in the second quarter, compared with 3.9% in the first quarter.

Looking at the revisions, Renaissance Macro's Neil Dutta said that inventories have shaved an average of 31 basis points off growth in the past eight quarters, compared with an average gain of 2bps per quarter over the past 20 years.