So it was a humdinger, after all. Friday morning’s GDP report, which is the first stab at estimating growth in the just completed second quarter of 2010, also provides some significant revisions to prior quarter growth estimates. The latter news is perhaps bigger than the 2nd quarter’s 2.4% gain—a bit below the consensus expectation of 2.7%. But what should really rock the boat is that the Commerce department did revisions across the full span of the pre-recession and post-recession period. While this big a revision across multiple quarters is not unprecedented, it will be an eye opener to many who commonly compare this recession to ones that occurred in the past two decades. What’s now clear is those comparisons were apples to oranges. What we suffered in the past recession—the depth of the contraction— hasn’t been seen since the 1940s.
The Commerce Department presents these revisions dispassionately, noting that the changes in real GDP are being revised down for all three years in the 2007-2009 time span: : 0.2 percentage point for 2007, 0.4 percentage point for 2008, and 0.2 percentage point for 2009. That may sound like minor tweaking, but it is a critically important recognition that the credit blowout that we suffered, and are still suffering, is categorically different than the normal cyclical pressures that bring on recession. Over the span of this recession, according to the Wall Street Journal’s quick tabulation, the economy contracted 4.7% much more than the previous estimate of a 3.7% decline (This assumes recession began in the 4th quarter of 2007 and ended in the second quarter of 2009.)
The shape of the recession is also changing under revision, with the final quarter of 2008—not the first quarter of 2009— now showing to be the worst, with GDP declining 6.8%. That’s much worse that the earlier number, which had the 4th quarter declining 5.4%.
The 2nd quarter’s 2.4% rate will be examined closely in the days ahead, but here’s a first look—i.e., a deconstruction— from chief economist Ian Shepherdson at High Frequency Economics:
Consumption rose only 1.6% in Q2,
much weaker than implied by monthly data, while foreign trade was even
worse than we expected, subtracting a huge 2.8% from the growth.
Capital spending was strong, with equipment and software up 21.9% as
replacement spending soars, and non-res structures rose 5.2%. Housing
jumped 27.8%, thanks to the tax credit; expect a Q3 drop. Federal govt
was strong, defense up 7.4% and non-defense – stimulus – leaped 13.0%.
Inventories added 1.1% to growth; final sales rose only 1.3%. With
inventories likely neutral in Q3, we need final sales to rise and the
trade hit to diminish to get decent GDP growth.