Sorry I’m slow posting this, but I was busy elsewhere yesterday.
To understand the real GDP report you need to look at the monthly data.
Real GDP is a measure of output. But we do not directly measure output. Rather, we measure consumption and adjust that for changes in trade and inventories to indirectly measure output.
Because of this methodology the trade and inventories data are measured from the end of the quarter to the end of the quarter in contrast to the other data that is the average of the three months data.
This quarter the difference was significant. Of the 3.3% growth in real GDP 3.1 percentage points was due to trade. Of the 3.1 percentage points some 1.65 percentage points stemmed from improving exports from March to June. But look at the chart. In March real exports dropped sharply below trend before rebounding back above trend in the second quarter. Much of this was the impact of a strike in the auto parts industry on US – Canadian auto trade. So a significant part of the reported surge in exports really reflects weakness in the first quarter data,
and a significant part of the second quarter growth probably really belongs in the first quarter.
But the pop in second quarter exports to above the growth trend probably is not a break in trend. It is likely to reverse, especially with world economic growth slowing.
Weak imports accounted for 1.45 percentage points of second quarter growth. This is largely a lagged function of weak domestic demand in earlier quarters. It does not reflect growth. Rather it reflects how the economy has changed and how we now export recessions abroad. It is part of the great moderation story. It was more weak demand than the dollar as the oil data shows.
In the second quarter real oil imports clearly broke below the flat trend of the last few years
and although oil imports should remain weak another sharp plunge like we just saw is unlikely.
Note, I am using percentage points rather than % because these numbers are additive.
P.S. In the second quarter real personal consumption expenditures rose at a 1.7% rate.
The July data just released implies that we are starting the third quarter with real PCE growing at a -1.4% annual rate. It is just one months data, but it is not encouraging.