GDP Data Stronger Than Financial Headlines Suggest

The Commerce Department reported on Thursday, real gross domestic product increased at an annual rate of 1.9 percent from April to June fiscal ’08, versus a consensus expected 2.3%. Expansion in the second quarter, though 0.4% lower than expectations – outpaced the Q1’08, when the economy grew at a 0.9 percent annual pace.

The increase in real GDP in the second quarter primarily reflected positive contributions from exports which added 2.4 points to the real GDP growth rate. Real exports of goods and services increased 9.2 percent in the second quarter, compared with an increase of 5.1 percent in the first. The weak dollar has made U.S. goods cheaper to foreign buyers, helping to bolster exports.

The largest change on real GDP was noted in the inventories. The category subtracted 1.92 percentage points from growth after subtracting 0.02 percentage point from the first-quarter change. Private businesses decreased inventories $62.2 billion in the second quarter, following decreases of $10.2 billion in the first and $8.1 billion in the fourth.

Real final sales of domestic product (GDP less change in inventories) grew at 3.9% rate in Q2’08, compared with an increase of 0.9 percent in the first. Real final sales are up 2.4% yoy basis.

Gross Domestic Product

Home building was a drag as expected, subtracting 0.6 points from GDP growth in Q2, the smallest drag from this sector in a year. It fell at a 15.6% annual rate, down from about 25% the previous three quarters. Meanwhile, software was weaker than anticipated, knocking off 0.25%, while nonresidential construction added 0.25%. GDP price index rose at a 1.1% annual rate in Q2’08.

Today’s GDP report, despite posting lower than expected results – shows a real economy that is functioning and it’s managing to expand despite its troubles. If we exclude the massive decline in inventories, which we believe are overstated and likely to be subject to upward revisions, we get real final sales growth at a 3.9% annual rate.

As we have stated before and continue to reiterate – these numbers are not recessionary. Any aspiration of experiencing a U.S. economy engulfed by a severe recession, is plainly delusional. While the economy is not growing at its full potential, we can’t argue with the fact that no matter what – is still growing.

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About Ron Haruni 1069 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

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