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% ― together, those two quarters were the worst six months in 50 years.
The expected resumption of growth has come at a high cost, and that’s employees. Companies are able to post profits because the labor force has been drained, and a flood of workers into the workforce isn’t expected to accompany growth, at least in the initial stages of recovery.
Even Federal Reserve chairman Ben Bernanke, who was earlier this week re-appointed by President Obama to serve four more years, says the labor market won’t rebound quickly.
“The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels,” he said last week in Jackson Hole, Wyoming.
A reminder of the jobless recovery was published at the same time as the GDP revisions in the form of the weekly jobless claims report, which showed 570k Americans filing for first-time unemployment benefits last week. Such high numbers of fresh claims suggest the unemployment rate will hit double-digits in by early 2010.