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Economy in Brief

Q2 GDP Fell A Lessened 0.7%; Hesitant Profits Recovery Continues
by Tom Moeller September 30, 2009

The second revision of GDP growth last quarter showed that activity fell slightly less than initially estimated. A 0.7% (AR) 2Q decline compared to 1.0% declines indicated in the two prior reports. During the course of the numbers' release, the decline in domestic final demand has been lessened to 0.9% after a 6.4% collapse to open the year. That easing has offset an increased negative influence from inventory decumulation.

Inventory decumulation continued as the major drag on GDP growth last quarter with a 1.4 percentage point reduction that was unrevised. Final demand revisions were modest. Consumer spending is now estimated to have fallen at a 0.9% annual rate (-1.7% y/y) led by a 5.6% (-8.8% y/y) drop in durables consumption. Residential investment fell at a little-revised 23.2% rate -25.6% y/y) and business investment dropped at a 9.6% rate (-19.7% y/y) which was similar to earlier reports. Government investment rose at a little revised 6.7% rate (2.5% y/y) and exports declined at a lessened 4.1% rate. Imports dropped 14.7%; therefore, net-foreign trade improvement added 1.7 percentage points to 2Q GDP growth.

Corporate profits in Q2 rose 3.7% (-12.6% y/y) pre-tax, including IVA and CCA, from Q1 which was slightly less of a rise than reported initially. The latest gain followed a 5.3% 1Q increase but both just dented a 22.8% 4Q decline. Financial industries saw their quarterly profits gain 12.0% in Q2 (-1.8% y/y) after having nearly doubled in Q1 versus 4Q. Nonfinancial company profits improved last quarter by a marginally unrevised 4.7% (-7.5% y/y). Rest of world profits fell for the fifth quarter in the last six and by 4.6% (-17.9% y/y).

The GDP price deflator was unrevised and was unchanged from 1Q. A 1.4% gain (-0.2% y/y) in the PCE price index followed a 1.5% 1Q decline. Overall, the domestic final sales price index rose at a negligible 0.5% rate (-0.3% y/y).

The U.S. National Income & Product Account data are available in Haver's USECON and the USNA databases.

Excerpts from Dallas Fed Chairman Richard W. Fisher's remarks before the Texas Christian University Business Network of Dallas can be found here.


Chained 2005$, % AR 2Q '09 (3rd Release) 2Q '09 (2nd Release) 2Q '09 (Advance) 1Q '09 2Q Y/Y 2008 2007 2006
GDP -0.7 -1.0 -1.0 -6.4 -3.8 0.4 2.1 2.7
  Inventory Effect -1.4 -1.4 -0.8 -2.4 -1.0 -0.4 -0.4 0.1
Final Sales 0.7 0.4 -0.2 -4.1 -2.8 0.8 2.5 2.6
Foreign Trade Effect 1.7 1.6 1.4 2.6 0.9 -1.2 0.8 0.1
Domestic Final Demand -0.9 -1.2 -1.5 -6.4 -3.7 -0.4 1.7 2.5
Chained GDP Price Index 0.0 0.0 0.2 1.9 1.5 2.1 2.9 3.3
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