The Bureau of Economic Analysis, which last month had estimated that U.S. real GDP had grown at a 2.4% annual rate during the second quarter, today revised that estimate down to a 1.6% annual rate. But the revision isn’t quite as discouraging as it might sound.
For one thing, much of the revision down in GDP growth came from a downward revision in the estimated extent of inventory restocking during the quarter. Thus, whereas last month’s numbers implied that real final sales grew at a 1.3% annual rate during the second quarter, today’s estimate is that real final sales grew at a 1.0% annual rate– not a very radical revision as far as the fundamentals are concerned.
The other important revision was that the growth in imports, which had already been an implausibly large drag on second quarter growth, is now estimated to have been an even bigger drag than at first claimed. Whatever the explanation for that is, our Federal Reserve Chairman does not expect it to be repeated:
Like others, we were surprised by the sharp deterioration in the U.S. trade balance in the second quarter. However, that deterioration seems to have reflected a number of temporary and special factors. Generally, the arithmetic contribution of net exports to growth in the gross domestic product tends to be much closer to zero, and that is likely to be the case in coming quarters.
Whatever you make of that, another detail that I found mildly encouraging is that the August BEA release provides us with the first estimate of gross domestic income for Q2. According to economic theory, gross domestic income should be exactly the same number as gross domestic product. In practice, since they are constructed in part from different sources, they are not exactly the same number, and the government faithfully reports their difference as an entry in the national income and product accounts known as “statistical discrepancy.” By definition, we don’t have a good theory of where the statistical discrepancy comes from or how to interpret it. But Federal Reserve economist Jeremy Nalewaik has argued that GDI is sometimes a better measure than GDP for tracking the business cycle. Because the “statistical discrepancy” entry has been shrinking over the last year, the rate of growth of GDI has been coming in a little better than GDP lately. GDI shows a 2.3% annual growth rate for the second quarter, or about the same rate as BEA had reported with their first estimate of GDP.
As long as I’m passing along the not-as-awful-as-we-thought spin on the economic news, I should also mention that the Fed’s index of industrial production grew by 1% in July. That’s 12% at an annual rate, if we were lucky enough to see it repeated for a whole year– no danger of that, unfortunately. But the favorable industrial production numbers were likely a key factor that helped pull both the Chicago Fed National Activity Index and the Aruoba-Diebold-Scotti Business Conditions Index back up to zero, away from the alarmingly negative numbers with which both had flirted last month.
But will the growth in manufacturing continue? Computer sales, which had been one of the healthy economic sectors, appear to be softening, with Intel reporting today that it is now expecting third-quarter revenue of $11 B, down from an earlier anticipated range of 11.2-12. And Bill McBride notes that the weak manufacturing reports coming in at the regional Federal Reserve Banks likely portend a deterioration in national manufacturing indicators such as the PMI.
Here’s how Fed Chairman Ben Bernanke summarized his outlook in Jackson Hole this morning:
Overall, the incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat weaker than most FOMC participants projected earlier this year…. I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace.
It seems that may be about the best that anybody hopes for at this point.