We got better GDP numbers this morn.
The hand wringing again was misplaced. We saw an unaltered direction to the “Muddle Through” economy. Not too hot and not too cold. The U.S. 10-year Treasury raced ahead 7 basis points to 2.68% upon the announcement; in anticipation of deeper Fed tapering. Stock futures responded with a slight positive tilt.
In prelim numbers, U.S. real GDP grew +1.7% in Q2. This amounted to a positive surprise -- economists looked for +1.0%. Final revised real GDP increased +1.1% in Q1. However, this is NOT apples to apples. The "second" estimate for Q2 comes on August 29. A final revised number comes even later.
I like to look at two indicators placed at the bottom of this news release. These two indicators reflect actual company top line numbers from earnings reports.
The first one is real final sales of domestic product. This is real GDP less change in private inventories. It increased +1.3% in Q2, compared to +0.2% in Q1. That means actual final demand in sales terms did pick up. The change in real private inventories added +0.41% to Q2 after adding +0.93% to Q1.
The second number I like is U.S. current-dollar GDP. This number adds back quarterly inflation. This is what you should expect a domestic major company to deliver in its top line revenue growth. Revenue growth reports for the S&P 500 track this number closely. Current dollar GDP increased +2.4%, or $98.1 billion, in Q2, to a level of $16.6 trillion. In Q1, current-dollar GDP increased +2.8%, or $115.0 billion.
We saw the consumer behave in a more cyclical way this quarter. Real personal consumption expenditures increased +1.8%, compared with +2.3% in Q1.
- Durable goods increased +6.5%, compared with +5.8%.
- Nondurable goods increased 2.0+, compared with +2.7%.
- Services increased +0.9%, compared with +1.5%.
Strength was seen in a broad wave of construction spending. It got stronger outside of housing. This is good news.
- Real nonresidential fixed investment increased +4.6% in Q2, in contrast to a decrease of -4.6% in Q1.
- Nonresidential structures increased +6.8%, in contrast to -25.7% in Q1.
- Equipment increased +4.1%, compared to +1.6%.
- Intellectual property products increased +3.8%, compared to +3.7%.
- Real residential fixed investment increased +13.4%, compared to +12.5%.
And surprisingly, both exports and imports grew smartly. This is perhaps the surprise of the report, as the global economy was supposed to be dead.
- Real exports of goods and services increased +5.4% in Q2, in contrast to a decrease of -1.3% in Q1.
- Real imports of goods and services increased +9.5%, compared with an increase of +0.6%.
Sequestration did not bite as hard as people thought. Defense spending’s downturn hit hard earlier. Real federal government consumption expenditures and gross investment decreased -1.5% in Q2, compared with a decrease of -8.4% in Q1.
- National defense decreased -0.5%, compared with a decrease of -11.2%.
- Nondefense decreased -3.2%, compared with a decrease of -3.6%.
- Real state and local government consumption expenditures and gross investment increased +0.3%, in contrast to a decrease of -1.3%.
All in all, a “Muddle Through” report if there is one.
My RTI Question?
What do you think? Were there any surprises in these numbers for you? Does this second quarter GDP report provide any catalyst to the stock market? Or is it just old news now?
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