Q2 GDP = 3.3% (kinda)

GDP is out, ticking higher to 3.3% rather than 2.7%

And if you believe that data, I also have a bridge for sale in Brooklyn.

Why the beat on the headline figure? Aside from the usual inflation nonsense, there were two other factors: Exports, which rose to 13.2% (versus earlier reported 9.2%) and Inventories, which also played a part in the apparent strength.

My fishing buddy John Silvia of Wachovia put it into context:

"The overwhelming story is that the export numbers have offset this domestic weakness in consumer spending and business investment.  We have a domestic recession.”

Also worth noting: larger than earlier reported gains in every single government expenditure category. If you are wondering why the government does not know what it is actually spending in near real time, welcome to the club.

Looking forward, I must note that Q3 does not have a stimulus package, but it *will* have a stronger dollar . . .


chart via Jake from EconomPic Data


Fuzzy Numbers (August 2008)   

GDP Second Quarter 2008 (Preliminary) 
Bureau of Economic Analysis, U.S. Department of Commerce
8:30 A.M. EDT, THURSDAY, AUGUST 28, 2008BEA 08-38      

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  1. Bruce commented on Aug 28

    Well, for all of you who posted and think that GDP did expand over 3 per cent last quarter…you have a real chance here to put your money where it will do the most good.

    I would suggest putting your entire retirement in financials, except for a few dollars to buy some baskets big enough to handle the returns over the next few months, and sit back to enjoy the lap of luxury…

    I would ask you just a question or two before you do it…

    With that expansion, why did house prices fall and vacancies expand. Why are the unemployment numbers now over 400k each week. Europe and Japan are slowing, how is it that we weren’t. Why have all automakers had such a hell of a time selling anything but hybrids. Why are retailers stinking up the place.

    And so on….

    Good luck.

    Bruce in Tennessee

  2. Rubens commented on Aug 28

    Barry, you are a glass half empty kind of guy. If you see a bunch of mixed news, you are only able to see the negatives. When some obviously positive news comes out, you refuse to believe it. Are you not a perma bear??

  3. Drew T. Matus commented on Aug 28

    Gross Domestic Income (GDI) matters

    With the release of the Gross Domestic Product report this morning the government also released an estimate of Gross Domestic Income (GDI). GDI is an alternative measure of economic activity calculated using income rather than production. Nominal GDI grew by 3.3% QoQ, annualized in the second quarter versus nominal GDP growth of 4.6%. Adjusting the income series to a real measure brings the series down to 1.9% and also shows that, in contrast to GDP, the series has already posted two consecutive quarters of negative growth – the lay man’s definition of a recession – since the fourth quarter of 2007.

    Don’t take our word for it…

    GDI has been a variable watched by the Fed for a period spanning both the Greenspan and Bernanke Feds. In 2007, the Fed published a paper in its discussion series entitled “Estimating Probabilities of Recession in Real Time Using GDP and GDI.” In that paper, the author noted that “the growth rate of gross domestic income (GDI), deflated by the GDP deflator, has done a better job recognizing the start of recessions than has the growth rate of real GDP. This result suggests that placing an increased focus on GDI may be useful in assessing the current state of the economy.” While not every paper published by the Federal Reserve is useful in determining what value is placed on a particular indicator, GDI makes appearances in FOMC meeting discussions dating back to the early 1990s indicating that movements in this series capture the attention of at least a few Fed officials. Most recently in the minutes of the May 2007 FOMC meeting we see the following:

    “Participants discussed how best to reconcile the slowdown in output growth over the past year with the relatively strong performance of the labor market. This apparent tension could partly reflect measurement issues; in particular, participants noted that the more-rapid gains in estimates of gross domestic income over this period might better capture the pace of activity than the modest advances in measured GDP.”

    GDI suggests much weaker economy than GDP in past year

    The GDI data suggest a much weaker pattern of growth over the last four quarters than does the GDP measure (and indeed since 2007). With history showing that
    the Fed watches both GDI and GDP, when the two diverge, the relative weakness of GDI to GDP suggests the Fed will look past the upward revision to 2Q GDP
    and focus on the outlook, which in our view, is likely to show two quarters of negative GDP growth beginning in 4Q of this year.

  4. Stuart commented on Aug 28

    It is also a useful analysis to compare gross GDP per quarter for the past several years to highlight just how the intentional understatement of inflation has dramatically overstated net GDP. The overstatement becomes quite apparent at the sudden dip in inflation last year. (lowest level since Roosevelt-not bloody likely)

  5. Pat G. commented on Aug 28

    “but it *will* have a stronger dollar . . .”


  6. me commented on Aug 28

    “How can anyone invest in this market with conflicting data and compromised public officials.”

    Just wait until they do away with GAAP and adopt the International Standards, which are just principles, not rules. Enron all over?

    I agree with several who think the Fed must raise rates now because as Fisher said, inflation is bad and now there is no downside risk.

    Does anyone ever wonder about what percent a Boeing Aircraft is made in the USA? What are we really exporting?

    Top 12 U.S. Exports

    The following product categories were America’s leading Exports in 2007. These categories represent about 38% of total U.S. exports during the year.
    Semiconductors … US$50.2 billion (4.3% of US total Exports, down 4.3% from 2006)
    Complete civilian aircraft … $48.8 billion (4.2%, up 19.6%)
    Automotive parts and accessories … $44.2 billion (3.8%, up 2%)
    New and used passenger cars … $43.7 billion (3.8%, up 28.6%)
    Other industrial machines … $38.3 billion (3.3%, up 17.1%)
    Pharmaceutical preparations … $35 billion (3%, up 13.2%)
    Telecommunications equipment … $31.4 billion (2.7%, up 10.8%)
    Organic chemicals … $31.4 billion (2.7%, up 15.7%)
    Electric apparatus … $31.1 billion (2.7%, up 4.2%)
    Computer accessories … $29.4 billion (2.5%, down 18.7%)
    Plastic materials … $29.1 billion (2.5%, up 15.6%)
    Medicinal equipment … $23.8 billion (2.1%, up 5%).


  7. DaveinHackensack commented on Aug 28

    Barry was kind enough to clarify his concern about the impact on inflation on GDP numbers in an e-mail to me and in a comment on my site, so I thought I’d thank him for that here.

    Regarding Bruce’s comment,

    “I would suggest putting your entire retirement in financials”

    I realize you are being facetious, but wouldn’t the logical implication be to invest in exporters, since much of the nominal growth in GDP was driven by growth in exports?

  8. Al Czervic commented on Aug 28

    Saw this in the report from AP (yes AP)…

    “One measure of corporate profits showed companies losing ground in the second quarter. After-tax profits fell 3.8 percent in the spring, compared with a 1.1 percent increase in the first quarter.”

    Didn’t there used to be some sort of relationship between stock prices and corporate profits?

  9. The Big Picture commented on Aug 28

    Is BEA Measuring Growth or Inflation?

    We noted earlier today that the Bureau of Economic Analysis reported revised Q2 GDP data at a better-than-expected annualized 3.3%. As discussed in the comments, the measure of Inflation is crucial to getting an accurate read on GDP (or Durable Goods)….

  10. Jeff M. commented on Aug 28

    @DaveinHackensack: I think the point is that with foreign economies also slowing, and a strengthening dollar, our exports will also likely slow as well. Am I correct here?

  11. Stuart commented on Aug 28

    “Fastest-Growing U.S. Exports

    Listed below are product categories for American exports that increased by experienced the highest percentage gains in 2007.

    Business machines excluding computers … US$5.4 billion (up 99.6% from 2006, up 179.8% from 2003)
    Wheat … $8.5 billion (up 99%, up 111.6%)
    Sorghum, barley and oats … $1.2 billion (up 74.7%, up 82.4%)
    Dairy products and eggs … 2.5 billion (up 64.2%, up 229.1%)
    Oilseeds and food oils … $2 billion (up 53.1%, up 43.4%)
    Nonmonetary gold … $13.3 billion (up 51.7%, up 178.2%)
    Steelmaking materials … $9,9 billion (up 46.2%, up 281.5%)
    Soybeans … $10.5 billion (up 43.5%, up 29.9%)
    DVDs, tapes and disks … $4.9 billion (up 39.8%, up 55.2%)
    Musical instruments … $2.1 billion (up 37.9%, up 103.7%)
    Natural gas … $3.1 billion (up 36.2%, up 118.1%)
    Corn … $11.2 billion (up 36.2%, up 94.8%).”

    Sounds like agriculture and gold are good places to be based on above.

  12. Bruce commented on Aug 28


    Yes, I agree with your point. Assumes that exports will remain strong with Europe, Japan and maybe China weaker and dollar rallying…?

    My main point to the folks who need to think about this a little more was in the words of the country ballad that could have been written by Uncle Sam about the GDP numbers….

    “Who are you going to believe? Me or your lyin’ eyes?”

    Cynics like me can be such party poopers…

    Bruce in Tennessee

  13. Big E commented on Aug 28

    I too think we’re heading off the cliff in Q3/Q4… they’re throwing everything they can at this to put this off on the next administration.

    If the Democrats were smart, they’d start talking about “George Bush’s recession” lest they get this coming disaster hung around their necks…

  14. leftback commented on Aug 28


    Let DaveinHackensack invest in exporters, retailers or financials.

    Then short the hell out of all of them..!

    The retailers are an OUTSTANDING short here. The banks may be a protected species but retail and commercial RE are beyond the protective embrace of Hanky Panky.

  15. Jeff M. commented on Aug 28

    @Leftback: I’m already big in SRS (and SKF) and loading up incrementally every time they dip. Until I see something that fundamentally changes the direction we’re headed, I will stay in both and keep nibbling. This is a time for common sense.

  16. rikardo kurvio commented on Aug 28

    taken from finance.yahoo :

    “…The improved trade picture added 3.1 percentage points to second-quarter GDP, the most since 1980…”

  17. mannfm11 commented on Aug 28

    These numbers are clearly cooked, but how can they not be. They count government spending which only means the government borrowed money and spent it. If $3 trillion is quarterly GDP, then the $90 billion they sent out is 3% by itself. It appears they spent significantly more on defense and other areas. The collapse in auto demand signals something besides a growing economy. The collapse in home building signals a recession. The US economic growth has revolved around creating and borrowing credit, which is in essence a liquidation, being counted as growth. A shift to less borrowing, less consumption and more exporting would be a good thing, except we have been suckered into financing the world indirectly through spending. The circle is actually reverse of what is thought, they financing us. The numbers are cooked, but the recipe is probably right.

  18. Bubbles commented on Aug 28

    I just flew home to Vegas from Cincinnati sat next to this guy who was a Federal law enforcement official and a complete idiot. It sickens me that the US taxpayer is paying for this public servant to FLY 1ST CLASS!

  19. bb commented on Aug 29

    since the GDP ie extrapolation into the next year of the last quarter on quarter growth, how were the tax rebates handled? there arent any planned for the next 3 quarters and if their effect was not cut to 1/4th the revised number would be overstated by 3%.

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