The advance reading for 2Q U.S. GDP showed a 1.0% contraction which surpassed estimates of 1.5% but a revision of the 1Q reading to -6.4% from -5.5% showed that the recession was the deepest in 27 years. Despite the contraction slowing, the 1.2% decline in personal consumption will dim the outlook for future domestic growth.
The advance reading for 2Q U.S. GDP showed a 1.0% contraction which surpassed estimates of 1.5% but a revision of the 1Q reading to -6.4% from -5.5% showed that the recession was the deepest in 27 years. Despite the contraction slowing, the 1.2% decline in personal consumption will dim the outlook for future domestic growth. Additionally, the prior quarter’s initial reading of a 2.4% increase was revised lower to 0.6% as American continue to tighten their purse strings. Taking a closer look at the break down the only positive component that we saw was government spending which rose by 5.6% as the stimulus plan started to be distributed during the period, and we should continue seeing positive contributions in the future, considering that only 10-15% of the $787 billion has been allocated. Other positive signs were the sharp improvements in gross private investment (-50.5% to -20.4%) and exports (-29.9% to -7.0%). Regardless, the expectations that unemployment will continue to rise should continue to weigh on consumer spending which will make sustainable growth difficult to attain. Next week’s Non-Farm payroll release takes on even more significant meaning as more job losses could lead to a sharp reversal in risk appetite which has been the main driver of price action.
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