REAL Q2 GDP below forecasts but NOMINAL better

Real Q2 GDP rose 2.4% vs expectations of 2.6% but Nominal GDP was better, up 4.2% vs the forecast of 3.7% as the price deflator rose 1.8%, .7% more than expected. Personal consumption rose 1.6%, which was below the expected gain of 2.4% but gross private investment rose a solid 28.8% led by a 21.9% rise in spending on equipment and software. GPI added 3.1 %pts to GDP. Also helping this component, non residential construction rose 5.2% and residential (helped by tax credit) rose by 27.9%. The rise in inventories added 1 % pt to GDP and Government spending added .9% led by Federal. Trade reduced GDP by 2.8 % pts. Real Final Sales, which takes out the impact of inventories, rose 1.3% and has been sluggish in the expansion over the past year where the 15 yr avg is 2.6%. Also included in the data are revisions for the past few yrs which saw Q1 GDP rise 3.7% instead of 2.7%. Bottom line, key contributors to Q2 GDP growth was government largesse as seen by the 4.4% gain in government spending and the large boost in residential construction mostly due to the home buying tax credit. Personal Spending was well below expectations and the rising trade deficit was also a drag. A key bright spot was the 21.9% rise in spending on equipment and software.

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