2Q13 GDP Growth (073113): An Annualized 1.7%, Up from Revised 1.1% in First Quarter; See Updates

Note: I won’t be reacting to the GDP report until sometime after 9 a.m. because I will be on the ADP Jobs Report conference call.

Additional topside note: The GDP revision today, done once every five years, goes all the way to 1929. Obviously there’s a lot to review.

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Predictions:

• Reuters — “Gross domestic product probably grew at a 1.0 percent annual rate after expanding at a 1.8 percent pace in the first quarter because government austerity and weak global demand weighed on the economy, according to a Reuters poll of economists. But there is a risk that growth undershoots expectations, with forecasts as low as a 0.4 percent rate.”
• McClatchy — “Most mainstream economic forecasters expect a growth rate from April to June well below 2 percent, with the most optimistic in the 1.5 percent range and the more pessimistic in the range of 0.5 percent. … It’s why President Barack Obama has given four speeches in the past week talking up the economy.”
• Associated Press (covered here last night; “Economy tepid in second quarter but will expand rapidly, economists predict” — “Economists forecast that growth slowed in the April-June quarter to a seasonally adjusted annual rate of just 1 percent, according to a survey by FactSet.”
• Business Insider — “expected to come in  at +1.0% compared with +1.8% in Q1. Lots of analysts are saying there’s a strong chance it’ll be on the bearish end of the 0.4% to 2.0% range noted by Econoday, in part as a result of sequestration.” Zheesh.

Comments:

• There will be a comprehensive revision of the past several years of GDP data. Their overall direction will tell us whether the past few years has been almost as bad as we thought or even worse.
• One figure almost no one looked at last month was the outsized contribution of a buildup in farm inventories, a puny element that somehow added 0.83 points of GDP out 1.8 in total. If that reverses itself in today’s report, there could be a significant “unexpected” surprise — unexpected to everyone except readers here.

HERE WE GO (full release): A better than expected 2nd quarter, offset by a much worse first quarter –

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.7 percent in the second quarter of 2013 (that is, from the first quarter to the second quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.1 percent (revised).

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The “second” estimate for the second quarter, based on more complete data, will be released on August 29, 2013.

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and residential investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The 2Q beat vs. expectations (+0.7%) is the same as the 1Q writedown (-0.7%).

A really quick look at the more recent revised numbers shows a few interesting items:

• 4Q12 growth was only an annualized 0.1%.
• 1Q11 had a contraction of 1.3% (i.e., we were at the edge of a double-dip recession, though the preceding and subsequent quarters were +2.8% and +3.2%, respectively).
• The second quarter of 2008 went to a positive 2.0%, further supporting the notion that the National Bureau of Economic Research blew the call when it said that the recession started in December 2007. It really started by the NBER’s own measurement guidelines in June 2008.
• Last year’s GDP growth was written up to 2.8% from 2.2%, and is entirely due to 1Q12 being revised up from 2.0% to 3.7%, more than offsetting smaller writedowns in the other three quarters.
• Zero Hedge notes that because of all of the revisions, the economy (as of 1Q13) just got $550 billion (3.4%) bigger ($16.535 trillion instead of $15.984 trillion). Immediate reax: I wonder how much of that is from 2Q08 and earlier?
• Zero Hedge notes that after today’s comprehensive revision, the 1Q13 miss vs. expectations was the worst in 27 months.

As to the current quarter:

• That farm inventories number, revised to contributing 0.88 points to the first quarter (meaning that all other factors only accounted for 0.22 points — yikes), came in positive (+0.13) this quarter. The guess here is that it won’t hold up in revisions and will go negative.
• The “government spending cuts ate my GDP” excuse (only a -0.08-point impact) is gone.
• The biggest negative influence, offsetting a few positives like fixed investment (from -.023 points last quarter to +0.93 points in the second quarter) was in imports and exports. While exports went from -0.10 points in the first quarter to +0.71 points in the second, imports went from a -0.10-point impact to -1.51 points (meaning that imports increased substantially). I would think/hope that this hugely negative number gets reduced in future revisions.

Overall, though it’s clearly not an acceptable result, the second quarter at least had some hints of building strength in areas that matter to genuine long-term economic improvement (i.e., fixed investment). But we really won’t know until we see what happens with imports, that pesky farm inventory change, and a pretty weak personal consumption element (only 1.22-point contribution) in future revisions.

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UPDATE: Seems a bit strong, but here it is from John Makin at AEI — “2Q growth numbers indicate a US recession is on the way”

UPDATE 2: “Goldman: ‘We Expect A Downward Revision To The Fed’s 2013 Growth Forecast’”

UPDATE 3: Intriguing question for which the answer will have to wait — How much of the 3.4% writeup of GDP can be traced to the God-awful Bush 43 years? As noted in the comments, NONE of it can be traced to the Obama years.