Why 2Q2011 GDP Was Revised Down to 1.0%

by Steven Hansen and Doug Short

Second quarter 2011 Gross Domestic Product (GDP) was just revised downward by the Bureau of Economic Analysis (BEA) from 1.3% to 1.0%.  Cutting to the chase, the decline was primarily due to the import / export balance – more imports and less exports.

Exports add to GDP, Imports subtract from GDP.  This 1.0% 2Q2011 GDP number is inflation adjusted and annualized – and considering the population is growing at 1% per year really translates to “no growth” per capita.     

In the chart above, please observe the improvement in consumer consumption in this second estimate.  0.3% improvement over the preceding period with population growth at 1% means the consumer is still contracting per capita.  Even good news is bad news.

What the BEA says about this 2nd estimate:

The “second” estimate of the second-quarter increase in real GDP is 0.3 percentage point, or $9.6 billion, lower than the advance estimate issued last month, primarily reflecting downward revisions to private inventory investment and to exports that were partly offset by upward revisions to nonresidential fixed investment and to personal consumption expenditures (PCE).

The bottom line summary in 2Q2011 is:

  • Consumers spending per capita shrunk
  • Anemic private domestic investment with a negative inventory effect
  • Export growth cycle is over
  • Government spending shrunk slightly

Overview Analysis:

The Briefing.com consensus was for 1.0, and Briefing.com’s own estimate was spot on at 1.0.

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 advance GDP number.

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 Q2 GDP Second Estimate of 1.0 is less than a third of the long-term 3.3 GDP average, below the regression and below the 10-year moving average. The second quarter of 2011 shows that the U.S. is not experiencing a strong recovery in the aftermath of the Financial Crisis and Great Recession.

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