Q2 GDP Research Notes

by Jim Baird on September 27, 2012

Second quarter GDP revised downward, significantly below expectations

Today’s third look at GDP for the second quarter resulted in growth being revised sharply lower to 1.3% from the Commerce Department’s previous estimate of 1.7%.  The magnitude of the downward revision to GDP for the second quarter was a surprise, but clearly reaffirmed the fact that the economy remains mired in a protracted period of slower growth.

Normally, the third estimate for quarterly GDP is a bit of a non-event as revisions tend to be modest.  Today’s report is a clear exception in that regard.

Confirmation that economic conditions were weaker than previously believed earlier in the year comes on the heels of a flurry of mixed economic data.  Recently softer prints in the jobs picture and manufacturing sector have offset improvement in consumer sentiment and evidence that momentum may be building in the long-depressed housing market.

While disappointing, clarification on second quarter GDP is unlikely to meaningfully impact expectations as analysts and investors have largely understood that the economy was slowing.  Investors may not react either, as other “real time” data should trump confirmation that second quarter growth was lackluster.

Recent cooling in the manufacturing sector, weak household income growth, dampened consumer spending, and limited job creation all suggest that the expansion will be challenged to accelerate in the near term, despite the Fed’s simulative efforts.

Macro risks remain a concern.  Outside the U.S., the global economy also continues to slow or even contract in some regions, heightening the risk for policy errors from central banks and political leaders.  Moreover, the fiscal challenges across much of the developed world will make the implementation of a fiscal solution to augment monetary stimulus a greater challenge politically.  All things considered, the U.S. economic expansion remains in a vulnerable state.

To see news coverage featuring Jim’s comments, please visit the following site:

Second-quarter U.S. growth cut to 1.3% (MarketWatch)


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