Good News and Bad News: Current Data Better Than Expected but History Revised Down
- Real Gross Domestic Product increased at a better-than-expected 1.7 percent annualized rate in 2013Q2.
- Real Consumer Spending increased at a moderate 1.8 percent annual rate in Q2.
- Nonresidential Fixed Investment grew at an unspectacular 4.6 percent annual rate.
- Real Government Spending fell at a 0.4 percent annual rate as federal discretionary spending eased.
- The previous four quarters of GDP growth were revised down.
- The ADP Employment Report for July showed a solid gain of 200,000 private sector jobs for the month.
The advance estimate of 2013Q2 gross domestic product is a good news/bad news story. The good news is that real GDP growth for the second quarter exceeded gloomy expectations at 1.7 percent. The bad news is that GDP growth in the four quarters from 2012Q2 through 2013Q1 was revised downward. Real GDP growth rates for that interval are now set at 1.2, 2.8, 0.1 and 1.1 percent respectively, showing that 2012 ended in a barely positive whimper. Fortunately, the last two quarters are showing mild acceleration from the very weak end of 2012, with real GDP growth in 2013Q1 increasing to 1.1 percent and 2013Q2 increasing further to 1.7 percent, despite the drag from fiscal tightening.
In 2013Q2, real consumer spending increased at a moderate 1.8 percent annualized rate with help from strong auto sales in June. Nonresidential fixed investment increased by an unspectacular 4.6 percent, after having declined at the same rate in the prior quarter. Residential fixed investment showed the fourth consecutive quarter of double digit growth, increasing at a 13.4 percent annual rate. Real inventory growth was better than expected, up $56.7 billion ($2009, note the rebase of constant dollars from 2005 to 2009 which is part of the comprehensive revision released today). Inventories added 0.41 percent to real GDP growth in Q2. The trade gap widened through the quarter, subtracting 0.81 percent from headline GDP growth. Federal discretionary spending continued to contract, down at a 1.5 percent annual rate, its third consecutive decline. State and local government spending was barely positive, up at a 0.3 percent annual rate, ending three consecutive quarters of decline.
The ADP Employment Report for July showed a better-than-expected gain of 200,000 private sector jobs for the month. If we assume a loss of 5,000 government jobs for July, that implies a gain of 195,000 total payroll jobs. This is above our estimate of 185,000 payroll jobs for July in the official Bureau of Labor Statistics count which is due out Friday morning. The ADP report shows solid gains in small business payrolls, up 82,000 for the month. Better-than-expected Q2 GDP and July ADP employment increase expectations that the Federal Reserve will begin to dial down QE3 this year. We may get some hints by the FOMC this afternoon that they are aiming for a mid-September announcement of QE3 calibration. Stay tuned.
Market Reaction: Equity markets opened with gains. The 10-year Treasury bond yield is rising, now at 2.69 percent. NYMEX crude oil is up to $104.10/barrel. The dollar is up against the yen and the euro.
For a PDF version of this Comerica Economic Alert, click here: GDP 073113.