Merk Investments: Gross Domestic Product Q2'08
The 1.5% increase in personal consumption and a 9.2% advance in exports were the primary catalysts behind the 1.9% increase in overall economic output during the second quarter of 2008. The below consensus print saw gross private investment fall by -14.8% and spending on equipment and software fell -3.4%. Residential investment declined by -15.6%, while imports declined -6.6%. Government consumption increased 3.4%, while the change in inventories saw an outsized decline of $ -62.2 billion dollars.
Looking at the major components as a contribution of percentage change to GDP, the market observed a 1.0% contribution in the personal consumption category and a -2.28% subtraction in the gross private domestic investment category. Net exports contributed 2.42%, while government consumption added 0.67%.
Lets not dress this up as anything more than it is. The below trend and somewhat disappointing print was a function of a well times stimulus package and solid demand from the external sector. The combination of a dreary environment for business fixed investment and the outsized correction in inventories took the edge off of the overall surge in policy induced consumption. Moreover, the revision of Q4’07 output down to a -0.4% print does set the stage for NBER to backdate the recession to late last year. Looking forward, there is little to be positive about. Personal consumption will in all probability decline and the external sector looks to be in the process of slowing down. The data supports our long term call of a ‘W’ shaped recession.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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