GDP Revisions Consistent with Growth in Current Quarter

Investors were confident that second quarter GDP, originally reported at -1%, was going to be revised lower by half a percentage point, and some were even pleased by that premonition, in hopes that the greater the fall, the quicker the recovery. In reality, the more complete GDP report also reported a 1% cutback. 

Yet the results are still encouraging. Inventories were slashed further than first reported (-$159.2 billion compared with -$141.1 billion), as expected, but consumer spending, which represents two-thirds of the economy, was not as weak (-1.0% compared with -1.2%). 

That’s positive news, as reduced inventories suggest businesses will have to restock rapidly when growth returns, just as analysts had hoped, while greater consumer spending should provide a foundation for the rest of the summer. In sum: the GDP revisions provide further reason to believe the economy will resume into growth mode in the current quarter.

“Revisions to the components looked pretty good, in general,” said Jennifer Lee from BMO Capital Markets. “There were upward revisions to consumer spending (but obviously still a negative print), equipment & software (again, still negative), housing (do I need to repeat it?), government spending, and exports.”

The 1% decline looks particularly good when contrasted with the prior two quarters. From January to March, GDP fell 6.4%, and in the three months prior it fell 5.4% â€