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GDP – Revised Down

Written by admin | May, 26, 2013

gdp-qtr-chg-at-annual-rate-082611As we have expected and discussed the 2nd estimate of the 2nd quarter GDP was revised down to just a paltry 1% growth rate.   The final estimate may well be below that considering the weakness that we have seen as of late in the regional manufacturing indexes.   There are a couple of things to note in the release:

1) the “Japanese Earthquake” effect that was supposed to be temporary was never the real issue.   Otherwise the 1st quarter GDP would not have been 0.4% to begin with as the the earthquake wasn’t until the end of the quarter.

2) While final sales of domestic product was revised to an annualized 1.2 percent from the initial estimate of 1.1 percent the overall rate is extremely sluggish and trending lower on a year-over-year basis and looks to have peaked in the 4th quarter of 2010.

3) Economy-wide inflation was revised up marginally to 2.4 percent annualized from the original estimate of 2.3 percent.  While this isn’t at levels at the moment to throw off alarm bells the inflationary pressures inside the economy are building.   This puts the Fed in a tight spot with a QE 3 program after already announcing that they will keep interest rates low until 2013.  

Bottom line the economy is on track, without another government stimulus injection, to fall into recessionary territory by the beginning of 2012.   The underlying momentum is deteriorating as evidenced by a variety of economic reports as of late.   An increasing in government spending added to this number this month but with “fiscal austerity” measures being debated in Washington any substantial decrease in government spending will seal the fate of the economy into a recession.

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