Mainstream media headlines in the last two days offer an amusing look at GDP forecasts.
GDP Stronger Than Expected
Yesterday, the Financial Times reported US Rebound Stronger than First Thought.
The US economy’s second quarter bounce was stronger than previously thought, with the official annualised growth estimate increased from 4 per cent to 4.2 per cent."Economic Pilot in Reverse"
The revision is more evidence of robust underlying growth in the world’s biggest economy as it swung back from a weather affected 2.1 per cent fall in the first quarter.
Today, the Wall Street Journal reported U.S. Consumer Spending Declines 0.1% in July.
Consumer spending fell in July and income growth was weak, signs that cautious consumers could restrain economic growth in the second half of the year.
Personal spending, which measures what Americans pay for everything from sneakers to doctor visits, declined a seasonally adjusted 0.1% in July from a month earlier, the Commerce Department said Friday. It was the first time spending fell in a month since January.
Personal income, reflecting income from wages, investment, and government aid, rose 0.2% in July—the smallest monthly increase of the year.
"Looks like the pilot threw the economy's engines into reverse at the start of the third quarter," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ. Forecasts that the economy would grow at a strong 3% clip in the third quarter "look increasingly unrealistic if consumers don't return to the shops and malls."
Economists surveyed by The Wall Street Journal had predicted personal spending would increase 0.1% and incomes would rise 0.3% in July.
Barclays lowered its forecast for third-quarter growth by a half-percentage point to a 2.2% pace. Goldman Sachs economists lowered their estimate to a 3.1% annual rate from a 3.3% pace.
Please consider Personal Income and Outlays: July 2014 by the BEA.
Personal income increased $28.6 billion, or 0.2 percent, and disposable personal income (DPI) increased $17.7 billion, or 0.1 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $13.6 billion, or 0.1 percent. In June, personal income increased $67.1 billion, or 0.5 percent, DPI increased $62.9 billion, or 0.5 percent, and PCE increased $50.5 billion, or 0.4 percent, based on revised estimates.Real PCE Highlights
- Real PCE -- PCE adjusted to remove price changes -- decreased 0.2 percent in July, in contrast to an increase of 0.2 percent in June.
- Purchases of durable goods decreased 0.6 percent, in contrast to an increase of 0.5 percent. Purchases of motor vehicles and parts accounted for most of the July decrease.
- Purchases of nondurable goods decreased 0.2 percent in July, in contrast to an increase of 0.3 percent in June.
- Purchases of services decreased 0.1 percent, in contrast to an increase of 0.1 percent.
- The price index for PCE increased 0.1 percent in July, compared with an increase of 0.2 percent in June.
- The PCE price index, excluding food and energy, increased 0.1 percent in July, the same increase as in June.
Zero for 79
Bloomberg reports U.S. Consumer Spending Falls for First Time in Six Months.
Consumer spending in the U.S. unexpectedly dropped in July for the first time in six months, a sign households are lagging behind as wages fail to accelerate.
Household purchases decreased 0.1 percent after increasing 0.4 percent in June, Commerce Department figures showed today in Washington. None of the 79 economists in a Bloomberg survey projected a decrease.
Rounding out the differences between GDP analysis yesterday and today, ZeroHedge reports Here Come the Q3 GDP Downgrades.
By the way, and in contrast to widespread economic thought, consumer spending is not the "engine of economic growth". Savings, investment, and production are.
Mike "Mish" Shedlock