Friday, July 31, 2015

US GDP - revisions imply lower productivity growth

US real GDP bounced back to a solid +2.3% annual pace in the second quarter of the year, proving that March quarter weakness was largely temporary.    The best part of the result was the +2.9% increase in consumer spending but private sector investment was less exuberant at +0.8%.

This release was also interesting in that it incorporated annual benchmark revisions back to 2012.  Of particular note was the upward revision in March quarter growth from an annualised -0.2% to +0.6%.  However on average the revisions knocked 0.2% off annual growth over the period of the revisions.

With respect to the comments I made yesterday about underwhelming productivity, these GDP revisions make the mystery a bit deeper by lowering implied productivity growth.  Any immediate concerns about that for the Fed will be ameliorated by the still subdued annual 1.3% increase in the core personal consumption expenditure deflator, but it does reinforce that the time for the Fed to start the interest rate normalisation process is nigh.