Real GDP was reported down 1% in Q2, a significant improvement from declines of more than 5% registered in each of the two previous
quarters. It is worth noting that the drop in Q2 was concentrated in inventories. As today’s Hot Chart shows, final sales – GDP less inventories – were virtually unchanged in Q2 (a small decline of -0.2% at an annualized rate), the best showing in a year.Looking ahead, we expect inventories to add to growth in the coming months as is normally the case in the initial phase of an economic recovery. The level of private inventories was down to a three-year low in Q2. As a ratio of final sales, stocks are now at their lowest level since 2005 (chart). In our opinion, conditions are now ripe for the start of an inventory rebuilding cycle.
Inventories have declined further in July based on the Chicago Purchasing Managers Survey:
David Rosenberg writes:
While it is tempting to strip out the inventory withdrawal and look at the fact that outside of that, real GDP contracted at a mere 0.2% annual rate, misses the point. While inventories will undoubtedly add to current quarter growth, we doubt that we’ll see another quarter of 13.3% growth in defense spending either. This added to GDP growth in 2Q by almost the same amount that inventories subtracted. Not only that, but the sharp improvement in the foreign trade sector, which added 1.4 percentage points to GDP growth in 2Q, is unlikely to be repeated either. The overwhelming consensus is that real GDP will be positive in3Q; but the key for how 4Q will shape up will rest in how real final domestic demand performs, which sagged at a 1.5% annual rate in 2Q, and -3.3% for private sector demand.
Related posts:
