July 31st, 2009 9:47 am | by John Jansen |

GDP in Q2 declined less than expected in Q2 at -1.0percent versus the consensus forecast of -1.5 percent.

Revisions to prior period data show that the economic contraction was deeper than originally reported with the YOY change -3.9 percent versus an expectation of something closer to -3.0.

The biggest disappointment in the data is the consumption slice which showed that consumption fell 1.2 percent in the quarter after rising 0.6 percent in the previous quarter.

Here are some thoughts from FTN Financial economist Chris Low on consumption and GDP:

The drop in consumption in Q2 was a disappointment, because it is the one important piece which does not fit the bottoming-out narrative. And, it’s a very important piece. Cash for Clunkers will boost consumer spending in Q3, however, and the pattern of the monthly consumption data suggests the quarterly changes of the last two quarters were flukes. Real consumption is essentially trending sideways. Still, trending up would be nicer. As long as consumption is flat or falling, there will be doubts about the sustainability of any economic recovery.

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  1. 11 Responses to “GDP”

  2. By deflation on Jul 31, 2009 | Reply

    Prices indexes , deflator and PCE lower though , so nominal GDP , that matters for coporate profits is worse than thought.

  3. By Joseph on Jul 31, 2009 | Reply

    I just can’t help but mention that the NYT headline was: “Economy shrank less than expected” but the Bloomberg headline was: “Recession worse than prior estimate.”

    Both are true, but biased. So much for an honest media. The WSJ was closest to impartial with: “Pace of contraction slows.”

    Thanks John, for providing the whole story, not just what you want to tell because you’re trying to get somebody elected.

  4. By sbenard on Jul 31, 2009 | Reply

    Interesting perspective, Joseph. I’ve also noticed that this is a consistent pattern. Financial Times reported it as “US GDP Contraction Slows to 1%” and Fox Business reported it as “Economy Contracts By 1%”, while AP spun it as “Smaller-Than-Expected GDP Dip Suggests Recession Easing”. It’s clear that some news outlets are more interested in putting a SPIN on the news than reporting it. In this case, Fox’ headline seems to offer the least spin.

    Any thoughts on why this GDP number sent interest rates plummeting? Treasury futures rose markedly, despite that stocks have been erratic.

    I’m curious what this data and phenom is telling us and how to interpret it. I’ve noticed that bond markets are often a better barometer of economic activity and forecasts than the manic-depressive stock market indexes. The stock markets often remind me of a hormone-driven teenager, while the bond markets are more like a somber and experienced adult.

  5. By sbenard on Jul 31, 2009 | Reply

    Seriously, guys, if this is such good news, why are treasuries rising so stoutly? This seems somewhat counter-intuitive to me. What gives?

  6. By sbenard on Jul 31, 2009 | Reply

    More perspective that is confusing to me —

    Dollar is getting beaten up badly, commodities are rising strongly today, all on the heels of this GDP data. Grains especially are strong today after being driven down to multi-year low prices over the past month — and it ain’t the weather doing this today! One of the best grain analysts I know tells me this is driven by GDP news in the broader markets. Probably a Dollar phenom driving commodities!

  7. By S on Jul 31, 2009 | Reply

    GDP deflator was awefully delfationary – its int he air in euorpe and Japan. Ackerman out with crisis not over call. Picturing Obama showering in a bush whistling the irish spring melody to the rythm of deflation in the air

  8. By Chicken on Aug 1, 2009 | Reply

    Deflation? Where, I just don’t see it most places I look except for real estate.

  9. By Griff on Aug 1, 2009 | Reply

    Investment holdings & retirement accounts…commercial RE will be a huge problem in next 3-5 years. And are wages going to spiral higher…just does not seem likely.

    Future liquidations / chapter 11’s of a number of LBO’s done 2-4 years ago are also going to hang around.

  10. By Gary on Aug 1, 2009 | Reply

    Griff — not one of the things you mentioned has anything to do with inflation. The value of a dollar is clearly going down (aka the cost of living is going up).

    Why do lame economists insist on babbling about declining stock prices, CMBS, and LBOs? Why were these prices not counted when they were climbing 15% a year (up to 2007), but now they supposedly do count now that the prices are going down? That’s just plain dishonest.

    Wages are increasing, at least in an economic sense. Economically, we all get paid per unit of output. Even in the case where workers are paid by the hour, that pay is based on an underlying assumption that workers produce “x” units of output per hour.

    Go into whatever business you like today. Workers in retail stores “work” (make sales) only a couple hours per day — and do busy work the rest of the day. Much of Wall Street spent the last year or two filling out suduku puzzles. A local painting company is offering all sorts of discounts because they have idle crews sitting around.

    Units of output are way down, stated wages are flat — that means wages per unit of output are way *UP* in an economic sense. Wall Street is once again so obsessed with the headline number that they aren’t bothering to understand what the number means.

    As Obama has pointed out (and other sources materially agree), health care spending is 18% of GDP. But CPI weights healthcare only 6%… Property taxes (aka local education) inexplicably “doesn’t count”, while college costs are under-represented in weighting and don’t reflect the implicit government subsidy of universities not paying tax. That’s why CPI reports low inflation — it misweights major spending like healthcare and education.

    In the real world, most people’s wages have not kept up with the cost of living since around 1970 or so. People made up the difference, accounting-wise but not in reality, by taking out big mortgages and later home equity loans… Wall Street was selling these loans, but somehow failed to notice why they were selling so easily; workers were trying to compensate for inflation (loss of purchasing power from their work) using excessive debt

  11. By Griff on Aug 2, 2009 | Reply

    As long as Bud Light cans come in 18-pack for $15.99 instead of $21.99…beer goggles can make things just “seem” better.

    I’d buy Sam Adams but currently “value” is a better trade.

  12. By Joseph on Aug 3, 2009 | Reply

    This is still getting comments? O.k., I’ll add one.

    Gary, i find your analysis fascinating, but I disagree. The current situation goes back to the basics of Milton Friedman, MV=PQ.

    We’re in the middle of trillions in write-downs, plus the saving rate is way up, reducing circulation even more. The govt. has attempted to offset this, but so far, the new govt. liquidity is sitting in vaults. In the short term this is deflationary.

    Soon the additional govt. liquidity will circulate and then be highly inflationary.(Bernanke et al. simply don’t have the stomach for the political fight it would take to withdraw liquidity.) So will overseas commodity pricing pressures.

    Although your anecdotes are terrific from an academic perspective (most professors would be lucky to be so lucid), they do not alter the fundamental money equation. Your painting company notwithstanding, idle workers are losing their jobs.

    Oh, and as for CPI, you’ve just shown why nobody trusts CPI anymore. PCE is popular for good reasons, not the least of which is it is known that that is what the Fed watches.

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