Real Q2 GDP rose 2.4% vs expectations of 2.6% but Nominal GDP was better, up 4.2% vs the forecast of 3.7% as the price deflator rose 1.8%, .7% more than expected. Personal consumption rose 1.6%, which was below the expected gain of 2.4% but gross private investment rose a solid 28.8% led by a 21.9% rise in spending on equipment and software. GPI added 3.1 %pts to GDP. Also helping this component, non residential construction rose 5.2% and residential (helped by tax credit) rose by 27.9%. The rise in inventories added 1 % pt to GDP and Government spending added .9% led by Federal. Trade reduced GDP by 2.8 % pts. Real Final Sales, which takes out the impact of inventories, rose 1.3% and has been sluggish in the expansion over the past year where the 15 yr avg is 2.6%. Also included in the data are revisions for the past few yrs which saw Q1 GDP rise 3.7% instead of 2.7%. Bottom line, key contributors to Q2 GDP growth was government largesse as seen by the 4.4% gain in government spending and the large boost in residential construction mostly due to the home buying tax credit. Personal Spending was well below expectations and the rising trade deficit was also a drag. A key bright spot was the 21.9% rise in spending on equipment and software.

Category: MacroNotes

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3 Responses to “REAL Q2 GDP below forecasts but NOMINAL better”

  1. Robespierre says:

    “A key bright spot was the 21.9% rise in spending on equipment and software.”

    This is the spending that businesses make when they want to increase productivity from their current head count. It would be a bright spot if the demand came from new business formation and while I don’t have the numbers my guess is that it is not…

  2. rootless cosmopolitan says:

    Real Q2 GDP rose 2.4% vs expectations of 2.6% but Nominal GDP was better, up 4.2% vs the forecast of 3.7% as the price deflator rose 1.8%, .7% more than expected.[...]

    These interpretation aren’t very meaningful. Nominal GDP for Q1 2010 was revised down from $14,592.4 to $14,446.4 in this GDP release compared to the 2nd GDP revision for Q1 2010 released a month ago in June. That is about a 1% downward revision and compared to the Q1 2010 2nd revision number the Q2 2010 GDP advanced number has barely changed. Considering the large degree the GDP numbers are often changed in the revisions from the advanced release to the 2nd revision, or even the annual revisions years later, sometimes up to a few full percent points, the only thing we can say right now about Q2 2010 is, we don’t really know the numbers yet.

    My expectation for Q2 2010 is still that after a few revisions are done its change from Q1 2010 will be more close to Zero.

  3. Carse says:

    The bottom line is government spending propping up the economy. I’m pretty sure we are screwed into the foreseeable future; quoting Kudlow’s comment last week.