U.S. GDP Growth in Q2 Is Slightly Lower Than Expectations

It's been a disappointing tale for the reports of U.S. real GDP growth since the current recovery began. The advance figure for 2Q showed growth of 2.4%, which was slightly below expectations for 2.7%. It was the fourth straight quarter of positive GDP growth during which it averaged 3.2%. It is, however, less than half the norm for the year following other deep postwar recessions. In addition, estimates of growth during the last three years were revised downward, mostly due to reduced estimates of personal consumption.

Growth in domestic final demand improved to 4.1% (AR) as a result of a rebound in residential investment to 27.8% growth in Q2. Growth in business investment also surged to 17.0%. Growth in personal consumption held fairly constant at a modest 1.6% and gov't spending also rose at a 4.4% rate. The contribution to last quarter's GDP growth from inventory investment slipped while foreign trade's effect went sharply negative due to a 28.8% quarterly surge in imports which offset a strong 10.4% gain in exports.

Price inflation as measured by the chained GDP price index improved to 1.8%. Nevertheless, the y/y increase of 0.8% remained barely above the lowest reading since the early-1950s. The personal consumption chain price index ticked up 0.1% last quarter but the 1.9% year-to-year gain remained near the quickest since 2008, mostly because of higher energy prices. The price index for fixed business investment also ticked up just 0.2% (-2.3% y/y) and the residential investment price index fell (-0.6% y/y).

Revisions to growth and inflation in prior years were accompanied by updated figures for corporate profitably. The revised 37.6% y/y gain as of 1Q was higher than reported last month due to strengthened financial sector earnings of 173.1% y/y. Also, the 11.3% growth in earnings from abroad  was improved from last month. Offsetting these revisions was a reduced estimate of  growth in nonfinancial sector earnings (26.3% y/y), though it remained the strongest since 3Q 2006. 

Chained 2005 $, % AR	2Q '10	1Q '10	4Q '09	2Q Y/Y	2009	2008	2007
GDP	2.4	3.7	5.0	3.2	-2.6	-0.0	1.9
Inventory Effect	1.1	2.6	2.8	2.0	-0.5	-0.5	-0.3
Final Sales	1.3	1.1	2.1	1.2	-2.1	0.5	2.2
Foreign Trade Effect	-2.8	-0.3	1.9	-0.6	1.0	-1.1	0.7
Domestic Final Demand	4.1	1.3	0.2	1.8	-3.1	-0.6	1.5
Personal Consumption	1.6	1.9	0.9	1.6	-1.2	-0.3	2.4
Business Fixed Investment	17.0	7.8	-1.4	5.2	-17.1	0.3	6.7
Residential Investment	27.8	-12.3	-0.8	5.3	-22.9	-24.0	-18.7
Government Spending	4.4	-1.6	-1.4	0.7	1.6	2.8	1.3
Chained GDP Price Index	1.8	1.0	-0.2	0.8	0.9	2.2	2.9

 

U.S. Employment Cost Index Gains Moderate As Benefits Ease
by Tom Moeller July 30, 2010

The employment cost index for private industry workers gave back some its recent improvement with a 0.5% gain last quarter. Nevertheless, the increase remained improved from the 0.2% low early last year. (The series dates back to 1980). The increase matched Consensus expectations for a 0.5% gain.

Growth in benefit costs in the private sector slowed to 0.5% during 2Q following the strong 1.4% 1Q pop. The quarterly pullback included sales and office workers (2.8% y/y), production & material handling employees (3.7% y/y) and management & professional workers (1.5% y/y). The cost of health benefits rose further to 5.0% in the latest 12 months, up from the 3.5% low in 2008.

Growth in wages & salaries held steady at 0.4%. Management, professional & related worker wages held steady (1.6% y/y) while sales & office worker wages improved to 4% (2.1% y/y). Production & material handling worker wages gained an improved 0.4% (1.4% y/y) but was still near the least on record. Factory sector wages grew 0.5% (1.5% y/y) while workers in service occupation saw a rise of 0.5% (1.7% y/y).

The employment cost index figures are available in Haver's USECON database.

 

ECI - Private Industry Workers (%)	2Q '10	1Q '10	4Q '09	2Q Y/Y	2009	2008	2007
Compensation	0.5	0.6	0.4	1.8	1.5	2.8	3.1
Wages & Salaries	0.4	0.4	0.5	1.6	1.5	3.0	3.4
Benefit Costs	0.5	1.4	0.3	2.5	1.2	2.6	2.4

 

U.S. Consumer Sentiment Falls Sharply from June
by Tom Moeller July 30, 2010

Consumers remain glum. The full-month July reading of consumer sentiment, as measured by the University of Michigan, dropped sharply from June to 67.8, though that was up slightly from the mid-month reading. The latest was the lowest reading since November. Nevertheless the index level remained up 22.6% since the low in November 2008. During the last ten years there has been an 89% correlation between the level of sentiment and the y/y change in real consumer spending.

The expectations index dropped sharply m/m but remained up 26.6% from the 2008 low. The readings for expected business conditions during the next year (-4.3% y/y) and expectations for business conditions during the next five years (0.0% y/y) both fell sharply from June. Expectations for personal finances also fell hard from June (-0.9% y/y).

Expected price inflation during the next year held steady 3.3% and remained up from the December 2008 low of 1.7%. Respondents' view of government policy, which may eventually influence economic expectations, retraced the gains of the prior two months and remained down sharply from its high last May. Fourteen  percent of respondents thought that a good job was being done by government versus 41% who thought a poor job was being done.

Sentiment about current economic conditions also fell sharply from June to the lowest level since November. The assessment of current personal finances reversed its improvement (5.7% y/y) since February while perceived buying conditions for large household goods, including furniture, refrigerators, stoves & televisions fell hard to the lowest level since November (+10.8% y/y).

The Reuters/University of Michigan survey data are not seasonally adjusted. The reading is based on telephone interviews with about 500 households at month-end. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.

 

University of Michigan	July	Mid- July	June	May	July Y/Y	2009	2008	2007
Consumer Sentiment	67.8	66.5	76.0	73.6	2.7%	66.3	63.8	85.6
Current Economic Conditions	76.5	75.5	85.6	81.0	8.5	69.6	73.7	101.2
Expectations	62.3	60.6	69.8	68.8	-1.4	64.1	57.3	75.6