Friday, May 27, 2011

US GDP revision & implications for growth

The US GDP non-revision for Q1 of 1.8% (expectations of a rise to 2.1%) would not mean anything if you merely read the headline. However, an investigation of the composition reveals a slower trajectory growth.

· Surprising Downward Revision to PCE, Points to Weaker Aggregate Demand- the most disappointing revision was the PCE, which was revised down from 2.7% to 2.2%. The revision was spread across the board- durables, non durables and services. Consumption spending is a core component of GDP, and the consumer is seemingly EVEN weaker than thought.
· Upward Revision to Inventories Points to Lower Inventory Building Ahead:- the stronger inventory build is likely at the expense of coming quarters, in particular Q2.
· Net GDP Revision Points to a Slower Trajectory of Growth than Apparent Earlier

The Fed’s current 2011 growth forecast of 3.1%- 3.3% will undoubtedly be forecasted down at some stage – not only was Q1 GDP growth NOT revised up as expected, the composition indicates that Q2 will be weaker than anticipated.

LEGAL DISCLAIMER: The views mentioned above are purely that of the author, and does not necessarily reflect the official view of Goldrock Capital or employees. Unless of course the aforementioned view was a phenomenally good call, with exquisite market timing, in which case Goldrock Capital reserves the right to all credit!!!!

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