2Q2011 GDP Improved Back to 1.3% but Remains Sickly

by Steven Hansen and Doug Short

Second quarter 2011 Gross Domestic Product (GDP) was just revised upward to its original value by the Bureau of Economic Analysis (BEA) from 1.0% to 1.3%.  The story is simple, two-thirds of the upward revision is due to the consumer being stronger than previously estimated.

However, 2Q2011 had the weakest consumer growth since 4Q2009.

This third estimate 1.3% 2Q2011 GDP number is inflation adjusted and annualized – and considering the population is growing at 1% per year means the economy only grew marginally per capita.

In the chart above, please observe the improvement in consumer consumption in this third estimate.  What the BEA says about this 3rd estimate:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 1.0 percent.

The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, personal consumption expenditures (PCE), exports, and federal government spending that were partly offset by negative contributions from state and local government spending and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the second quarter primarily reflected a deceleration in imports, an upturn in federal government spending, and an acceleration in nonresidential fixed investment that were partly offset by a deceleration in PCE, a downturn in private inventory investment, and a deceleration in exports.

The bottom line summary in 2Q2011 versus 1Q2011 is:

  • Consumers spending grew at an annual rate of 0.7% – much smaller than the population growth rate of 1% – and is smaller than the 1Q growth rate of 2.1%
  • Gross Private Domestic Investment is growing at 6.4% annually and almost double the 1Q rate
  • Both import and export growth have shrunk to the 1% – 2.5% range
  • Government spending shrunk slightly (0.9%) but the contraction is significantly smaller than 5.9% in 1Q

Overview Analysis:

The Briefing.com consensus and Briefing.com’s own estimate were for 1.2.

Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I’ve also included recessions, which are determined by the National Bureau of Economic Research (NBER).

Here is a close-up of GDP alone with a line to illustrate the 3.3 average (arithmetic mean) for the quarterly series since the 1947. I’ve also plotted the 10-year moving average, which, at 1.6, is above the Q2 GDP Third Estimate.

Here is the same chart with a linear regression that illustrates the gradual decline in GDP over this timeframe. The latest GDP number is about about half the approximate 2.1 of the regression at the same position on the horizontal axis.

And for a bit of political trivia in this post-election period, here is a look a GDP by party in control of the White House and Congress.

In summary, the final Q2 GDP Estimate of 1.3 is a full 2.0 below the long-term 3.3 GDP average, below the regression and below the 10-year moving average. Moreover, the math behind the upward revision is not particularly encouraging, especially the growth in government spending and decelerating personal consumption:

The acceleration in real GDP in the second quarter primarily reflected a deceleration in imports, an upturn in federal government spending, and an acceleration in nonresidential fixed investment that were partly offset by a deceleration in PCE, a downturn in private inventory investment, and a deceleration in exports.

The second quarter of 2011 shows that, despite the upward GDP revision, the U.S. is not experiencing a strong recovery in the aftermath of the Financial Crisis and Great Recession.

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In summary, the final Q2 GDP Estimate of 1.3 is a full 2.0 below the long-term 3.3 GDP average, below the regression and below the 10-year moving average. Moreover, the math behind the upward revision is not particularly encouraging, especially the growth in government spending and decelerating personal consumption:

The acceleration in real GDP in the second quarter primarily reflected a deceleration in imports, an upturn in federal government spending, and an acceleration in nonresidential fixed investment that were partly offset by a deceleration in PCE, a downturn in private inventory investment, and a deceleration in exports.

The second quarter of 2011 shows that, despite the upward GDP revision, the U.S. is not experiencing a strong recovery in the aftermath of the Financial Crisis and Great Recession.

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