Thursday, July 31, 2008

GDP Disappoints

From CNBC:

The Commerce Department reported Thursday that gross domestic product, or GDP, increased at an annual rate of 1.9 percent in the April-to-June period. That marked an improvement over the feeble 0.9 percent growth logged in the first quarter of this year and an outright contraction in the economy during the final quarter of last year.

Remember this number is heavily influenced by the rebate checks that went out in the second quarter. Here's how the BEA noted the big changes:

The acceleration in real GDP growth in the second quarter primarily reflected a larger decrease in imports, an acceleration in exports, a smaller decrease in residential fixed investment, and an acceleration in PCE that were partly offset by a larger decrease in inventory investment.

So, we're importing less (which probably means the price of oil really started to hit) and exporting more (thanks to the cheap dollar). Exports have been and will continue to be one of the bright spots of the economy as we go forward. They are the one saving grace from the dollar's long drop.

I'm particularly interested in personal consumption expenditures because these would be the biggest beneficiary of the stimulus checks that went out. These increased 1% in 4Q07 and .9% in 1Q08. They increased 1.5% in 2Q08. In other words, we saw a bump up from the checks.

PCEs contributed 1.08 to the 1.9% increase. However, this number was .67 in the 4Q07 and .61 in 1Q08. So using the highest of the preceding two quarters numbers as a proxy for the non-stimulus contribution rate we would we a 1.49% rate of growth for the overall economy, all other things being equal in the current report.

Also note the BEA made downward revisions to the 2005, 2006 and 2007's total GDP. That tells me there may be further downward revisions coming, does a very important revision within the numbers:

Annual benchmark revisions showed consumer spending slowed more than previously estimated and the housing slump worsened. The economy shrank 0.2 percent in the fourth quarter last year, compared with a previously reported 0.6 percent gain.

In other words, the beginning of the recession was probably sometime within that time.