At the end of August I wrote "Q2 GDP - Nothing Good Happening Here" wherein I stated: "With
GDP currently at 1.7%, as of the latest estimate, the decline in
overall PCE, Goods, and Durable Goods, is very concerning about the next
couple of quarters ahead. While the pick up in services spending
(haircuts, accounting, legal, etc.) is currently keeping the current
quarters GDP afloat - service related spending does not lead to
substantially stronger economic output in the future. The real economic
drivers are the manufacturing of goods, and unfortunately, that is where
weakness is developing." The recent release of the final estimate
of Q2 GDP, and the September's Durable Goods Report, confirmed that
indeed the economy was far weaker than the headline releases, and media
spin, suggested.
While the media quickly glossed over the
surface of the report there were very important underlying variables
that tell us much about the economy ahead. The first chart below shows
the differences between the 1st and final estimate of 2nd quarter GDP.
I
have put the basic formula of the GDP calculation at the top of the
chart and circled the relevant segments. The revisions between the first
and final estimates of 2Q GDP showed that personal consumption
expenditures (PCE) was just $0.5 billion stronger than originally
estimated. However, this reflects a sharp downward revision of 90% from
the 2nd estimate which had shown a $4.9 billion increase.
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