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Thursday, August 28, 2008


2q gdp revised up to +3.3%

widely reported, but some points:

  1. barry ritholtz cries foul, but as was earlier hashed out the GDP deflator does not account for import price increases -- such as oil -- and that's the source of american inflation. are we experiencing inflation? yes. is it in domestic products? no, at least not yet. if anything, the domestic environment is deflationary -- which makes the 1.2% GDP deflator altogether plausible. one can, however, certainly argue -- as stefan karlsson does -- that terms of trade are important and the method of GDP calculation is therefore flawed and not representative of the reality.

  2. as dean baker pointed out previously, 3q GDP is so far looking to be fairly strongly negative. a stronger dollar should also cut into the export growth that accounted for much of the 2q pop. this might in fact be the W-shaped recession that some forecast, with negative quarters broken up by an interlude.

  3. karlsson noted the ongoing crushing of corporate profit margins.

    [W]hat seemed to be ignored was that the report also said that corporate profits fell again-and this despite the fact that the BEA definition of profits is unaffected by write-downs. Overall corporate profits fell in nominal terms by an annual rate of 9.2% compared to the previous quarter and by 7% compared to Q2 2007. If you adjust for inflation, then we're talking about double digit declines in corporate profits.

    And moreover, this number would have been even more dismal if it hadn't been for the rising profits from the foreign subsidiaries of American companies compared to the profits of the subsidiaries of foreign companies in America. The profits of domestic non-financial companies fell in nominal terms as much as 21.8% at an annual rate compared to the previous quarter and by 17,4% compared to Q2 2007. Adjusted for inflation, these declines are even larger.

    The point about that is first of all is that it will likely cause companies to reduce their investments in the future.

    this fact is showing up clearly in the more pronounced decline of gross domestic income (GDI), as opposed to GDP, which was revised negative for both 4q2007 and 1q and showed just 1.9% growth in 2q. this does not bode well for the near-term future of employment, and therefore of both consumption and GDP.

UPDATE: as an addendum to points 2 and 3 -- incomes fell in july 0.7%, the biggest jump down since katrina. consumer spending correspondingly collapsed 0.4%.

UPDATE: more from menzie chinn.

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