Friday, August 27, 2010

2Q GDP Revised Down From 2.4% to 1.6%

Second quarter real GDP growth was revised down from an annualized 2.4% to an annualized 1.6%. The adjustment was driven by downward revisions to both private inventories and net exports. Consumer spending was revised upward; however, GDP’s downward revision marks a weakening recovery. On a year-ago basis, real GDP grew 3.0%.

Weaker exports and higher imports detracted 3.4 points from GDP, compared to the 2.8 point reduction initially reported. This is much weaker than the first quarter, where net exports removed 0.3 points from GDP. Inventory investment decelerated faster than initially expected, adding 0.6 points to GDP, down from the previously reported 1.1 points. This was the weakest inventory report in past three quarters.

An upward revision to consumer spending was a small offset to the downward pressures. Consumption added 1.4 points to GDP, up from the initially reported 1.3 points. Consumer spending has improved for two consecutive quarters.

Corporate profits increased $73 billion from the first quarter to an annualized $1.64 trillion. This was the sixth consecutive quarterly increase in profits as companies benefitted from stronger consumer demand. Profits were 11.2% of GDP in the second quarter, up from the 7% cyclical low at the end of 2007.

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