GDP Growth Revised Downward - August 26, 2011
Within the past hour, the U.S. government has lowered its second-quarter estimate of the nation's gross domestic product, reducing that already tepid growth rate from 1.3% to 1.0%. That was a tad below the already expected downward revision to 1.1%. A second, or final, revision is due out late next month. It may not be much better, if at all.
The reduction in the growth estimate from the month before was due principally to weak exports and a smaller buildup in inventories. Meanwhile, consumer spending rose just 0.4% in the quarter. However, that was better than the initial estimate of a 0.1% gain. This better increase added 0.3% to the GDP uptick in the quarter. Additionally, final sales rose by an estimated 1.2% in the period; initially, that estimated increase had been 1.1%.
However, the increase in exports was nearly cut in half, from an initial increase of 6.0% in the advance GDP report, to 3.1% in the revised issuance. Exports had been one of the prime contributors to the earlier expansion in economic activity in 2009 and 2010. If exports continue to languish, or worse, start to retreat, the business recovery, already on weak footing, could falter even more.
Also indicated in the report was that corporate profits, which surged by 8.7% in the first quarter, nearly evaporated in the more recent period, gaining a minuscule 0.8%. All in all, it was a disappointing report, but not a surprising one. It suggests, as we thought before, that the odds this nation will slip into a recession is now close to 50%. We think such a downturn is still avoidable, but even if we sidestep such an unwanted occurrence, it will almost seem like we are in such a reversal, as unemployment will remain high for some time, and the housing market is likely to stay depressed.
At the time this article was written, the author did not have positions in any of the companies mentioned.