Second-Quarter GDP Shows Some Unexpected Life - July 31, 2013
For the past several weeks, estimates of the nation's second-quarter gross domestic product had come steadily down, with some of the more bearish prognosticators even estimating that growth, encumbered by higher taxes and the imposition of budget austerity measures, might even fall below 1%.
Such a dour result, therefore, would be far worse than the then-estimated 1.8% first-quarter GDP gain. Surprisingly, though, the Commerce Department earlier this morning estimated that GDP had increased by a more significant 1.7%. As noted, that gain was nearly twice the average bearish forecast, and nearly four times the most pessimistic expectation.
At the same time, the first-quarter growth rate was pared back from the revised estimate of 1.8%, to just 1.1%. This interesting, to say the least, transposition of the two opening half performances, would seem to be setting the country up for a better showing during the concluding six months when we would expect growth to average 2%, or even a tad better.
Interestingly, this better second-quarter result and more optimistic leanings for the third quarter, at least, could well influence the Federal Reserve, which is now meeting in Washington, to more quickly end its historic monetary easing efforts a little sooner than many have been expecting. We shall see on that score a little later today.
As to this report, rebounds in business spending and export demand, and surprisingly, a sharp moderation in the pace of decline in U.S. government outlays, helped than nation's economic performance during the April-to-June period. That said, the second quarter marked the third successive period in which growth had fallen shy of 2%, which is hardly a confidence builder going forward. This may be why the Fed may opt to go slowly on the monetary brakes, when its concludes its meeting today.
In addition to the influences cited above, the second quarter also was helped by positive contributions from personal consumption expenditures, nonresidential fixed investment, and an upturn in state and local government spending. Hurting GDP in the latest period were increases in imports and a falloff in inventory accumulation.
Taking all of this into account, especially the materially weaker expectations, this latest showing must be viewed as at least modestly reassuring, with the lone disconcerting note being that the lead bank may now be a bit more receptive to ending its asset-purchase program sooner rather than later, although our sense is that nothing of note will be decided upon today, especially with the monthly payroll report still some 48 hours away.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.