Q2 GDP Revised To 6.6%, Missing Expectations; Core Inflation Hits Highest Since 1983

One month after the BEA shocked markets with its first estimate of Q2 GDP, which was a huge miss to expectations of 8.5%, printing at just 6.5%, moments ago there were far less fireworks when the BEA released its first estimate of Q2 GDP, which came in at 6.6% (6.560% to be precise), which was also a miss to estimates of 6.7% but far more modest.

According to the Dept of Commerce, the update to the first estimate reflects upward revisions to business investment and exports that were partly offset by downward revisions to private inventory investment, housing investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, were revised down.

These were the main revisions:

  • Personal consumption came in at 7.80%, virtually unchanged from the first estimate of 7.78%. On an annualized basis, Personal consumption came in at 11.9%, missing the estimate of 12.2%.
  • Fixed investment also rose modestly, contributing 0.62% of the bottom-line GDP, up from 0.57%.
  • Offsetting these increases, private inventories detracted -1.30% from the final number, more than the -1.13% initial estimate.
  • Net trade was a favorable offset, with net exports detracting only -0.24% from the bottom line number, less than the -0.45% initial estimate.
  • Finally, government subtracted 0.33% from the GDP number, a little more than the -0.27% initial estimate.

As the BEA noted, real disposable personal income (DPI) personal income adjusted for taxes and inflation decreased 31.0% in the second quarter after increasing 54.7% (revised) in the first quarter. The decrease in current-dollar DPI primarily reflected a decrease in government social benefits related to pandemic relief programs. Personal saving as a percent of DPI was 10.3 percent in the second quarter, compared with 20.5 percent (revised) in the first quarter.

The BEA also provided an update on corporate profits which rose 5.1% in prior quarter; Y/y corp. profits were p 43.4% in 2Q after rising 17.6% prior quarter. Of these, financial industry profits increased 11.1% Q/q in 2Q after rising 0.3% prior quarter; at the same time, federal Reserve bank profits up 36.4% in 2Q after falling 11.1% prior quarter. Nonfinancial sector profits rose 10.6% Q/q in 2Q after rising 9.1% prior quarter.

Last but certainly not least, and in fact the highest since 1983, core PCE came in at 6.1%, in line with expectations, and the highest since Q3 1983.

And with scorching inflation continuing to rise at a time when Wall Street is slashing its GDP estimates for Q4 GDP, the US economy is slowly but surely sliding into stagflation.

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