Real GDP growth came in a bit slower than the consensus expected for the second quarter and growth in the first quarter was revised down to only a 0.4 percent rate. However, we had been forecasting a growth rate of 1.1 percent, so were not surprised and still believe in a marked acceleration in the second half as the economy gets over supply-chain disruptions from Japan. Also, most of the downward revision for the first quarter was due to slower inventory accumulation, which leaves more room for future growth. In other words, today’s revisions are not a sign of a double-dip recession.
Reinforcing this view is that today’s numbers include an 8.7 percent upward revision to corporate profits in the first quarter. Going back further with the revisions, new data show the economic panic in late 2008 and early 2009 was even worse than previously estimated but that growth in 2010 was faster.
Today’s data do not support the case for keeping short-term interest rates at near zero. Nominal GDP — real GDP growth plus inflation — is up at a 4.1 percent annual rate in the past two years.
More timely reports show the economy is accelerating out of the first-half slog. New claims for unemployment insurance dropped 24,000 last week to 398,000. Continuing claims for regular state benefits fell 17,000 to 3.70 million. On the housing front, pending home sales, which are contracts on existing homes, increased 2.4 percent in June after an 8.2 percent surge in May. These figures strongly suggests existing home sales (counted at closing) will rise in July.
— Bob Stein is senior economist with First Trust Advisers.