While the final Q2 GDP revision released moments ago by the Bureau of Economic Analysis is a largely meaningless number looking at the performance of the economy some 3 months ago, it will still set the momentum for today’s trade, and with its surging from a 3.7% first revision print to 3.9%, surpassing expectations of a 3.7% print, means that concerns (or perhaps hopes) for a rate hike are once again back on the table.
As the chart below shows, after printing a modest, and double-seasonally adjusted 0.6% in Q1 (originally this was negative), in the second quarter the economy is said to have grown at the fastest pace since Q3 of 2014 when the Fed was once again said to be on the verge of tightening.
The breakdown by components shows an increase in the two key items:
- Core Personal Consumption Expenditures rose by 3.6%, far above the 3.1% in the prior revision and above the 3.2% expected. It contributed 2.42% of the final 3.91% GDP annualized number, up from 2.11% earlier.
- Fixed Inventory also rose, adding another 0.83% to GDP, up from 0.66%
Net trade was largely unchanged while Inventories declined modestly, adding 0.02% to GDP, down from 0.22%.
What is perhaps ironic in this strong number, and the reason for the kneejerk reaction higher in stocks only to fade, is that the higher the Q2 GDP, the lower the Q3 number will be – as more spending was pulled forward, it means that consensus expectations of Q3 GDP will now surely drop below 2%, and begin to converge with the Atlanta Fed’s own Q3 GDP “nowcast“, which yesterday was revised to a paltry 1.4%.
