US GDP REVISIONS MEAN FASTER CONSUMER DELEVERAGING AND LOW INFLATION

The U.S. economy increased 2.4% in the second quarter, slightly below market expectations. Q2 delivered slower
GDP growth compared to Q1 but with a marked acceleration in real domestic demand from 1.3% to 4.1%. We prefer to see a weaker GDP growth due to a rise in imports with strong domestic demand than a weaker GDP growth due to a weaker domestic demand.

That said, what was more striking in today’s report was the BEA’s annual revisions to the National Income and
Product Accounts. The level of real GDP in the first quarter of 2010 was revised down by $100 billion. From a
component perspective, consumption registered the largest revisions in dollar terms with a decrease of $134
billion. Accordingly, U.S. consumption is not in an expansion mode as originally reported but rather still in the recovery stance.

There are mainly two consequences with the BEA’s revisions. First, it means that the savings rate probably was higher than first thought and job creation is more than ever needed to sustain consumption growth (conversely it means that the U.S. consumer is deleveraging more quickly than expected). Secondly, the U.S. output gap is deeper in excess supply territory than before the BEA’s revision. Bottom line: The fed is on the sidelines for a longer period of time.

National Bank Financial Group

Related posts:

1. US Q2 GDP AND REVISIONS CHARTED
2. U.S. CONSUMERS DELEVERAGING FAST
3. THE US CONSUMER: ANYTHING WRONG?
4. THE US CONSUMER: SAVINGS? WHAT SAVINGS?
5. US CONSUMERS: TO SAVE OR TO SPEND?

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