GDP Revision

August 27th, 2015 8:58 am | by John Jansen |

GDP revisions generally do not cause a ripple in the marketplace. That is not the case today as the revision of Q2 GDP manifests an economy in much better shape than initially believed. That suggests strong momentum as Q3 began.

Via Millan Mulraine at TDSecurities:

The US economic recovery shifted up a few gears in Q2 with the second print of the GDP estimate revised to +3.7% q/q from 2.3% q/q. This suggests a sharp acceleration in economic growth momentum following the weather-induced sluggish performance in Q1. The overall tone of this report was exceptionally strong, and with final sales revised significantly higher to 3.5% from 2.4%, this report points to very strong domestic momentum in Q2 after the recovery essentially stalled in Q1.
The revision were across a broad spectrum of sectors in the economy, with the contribution to growth from consumption (from 2.0 ppt to 2.1 ppt), fixed investment (from 0.16 to 0.66), inventories (from -0.08 to 0.22), net exports (from 0.13 to 0.23) and government (from 0.14 to 0.47) all revised higher. And with much of the upward revisions coming from the strong performance in the latter half of the quarter, the hand-off to Q3 GDP will be quite favorable. In fact, our current expectation is for the economy to sustain the positive momentum, with the recovery boast growth in the 3.0% to 3.5% range in Q3.
This strong positive revision to Q2’s GDP performance will be welcome news at the Fed, and it will be interpreted as further evidence that the economic recovery is on much firmer footing that previously though. Nevertheless, the key to the monetary policy stance in the near term will not be past growth or inflation performance, but the outlook for both. And given the recent financial market volatility and the lingering anxiety about global growth, the outlook for both is now more uncertain and tilted to the downside (especially for inflation). This will provide the pretext for the Fed to take a pass on raising rates in September.
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  1. One Response to “GDP Revision”

  2. By GregL on Aug 27, 2015 | Reply

    The article ends with:

    “This will provide the pretext for the Fed to take a pass on raising rates in September.”

    The author provides objective analysis and then says in the final sentence that the analysis has no bearing on the predicted outcome. What a useless article!

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