Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
 
 

Blog Home
   Brian Wesbury
Chief Economist
 
Click for Bio
Follow Brian on Twitter Follow Brian on LinkedIn View Videos on YouTube
   Bob Stein
Deputy Chief Economist
Click for Bio
Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube
 
  Real GDP Growth in Q2 Was Revised Higher to a -0.6% Annual Rate
Posted Under: Data Watch • Employment • GDP • Government • Housing • Industrial Production - Cap Utilization • Inflation • Markets • Trade • Fed Reserve • Interest Rates • Spending • Bonds • Stocks • COVID-19
Supporting Image for Blog Post

 

Implications:   Today’s second report on Q2 real GDP was revised slightly higher from the initial reading a month ago, declining at a 0.6% annual rate.  The upward revision to the overall number was due to stronger consumer spending and inventories, which more than offset a downward revision to home building.  However, the most important news today was that corporate profits soared in the second quarter, growing 6.1% versus Q1, up 8.1% from a year ago, and up 26.7% versus the pre-COVID level.  Profits in Q2 rose at domestic non-financial companies as well as from operations abroad, but declined at domestic financial corporations.  Our capitalized profits model suggests US equities are roughly fairly valued today at current interest rates, although we believe equities will remain range bound until we eventually hit a recession starting sometime in 2023-24.  Although some investors think a recession has already started, given two straight quarters of negative real GDP growth, we don’t think that’s right.  Now that we have corporate profits for Q2, we also have real Gross Domestic Income (Real GDI), an alternative measure of GDP that is just as accurate.  Real GDI grew at a 1.4% annual rate in Q2 after growing at a 1.8% rate in Q1.  In addition, so far this year the unemployment rate has dropped, payrolls have expended 471,000 per month and industrial production is up at a 5.1% annual rate.  These are just not numbers we’d get in a recession.  They suggest real GDI is more accurate right now and the real GDP numbers will eventually be revised positive over the next few years.  Where does this all leave the Federal Reserve?  Still behind the curve.  GDP inflation was revised higher to an 8.9% annual rate in Q2, the fastest pace for any quarter since 1981.  GDP prices are up 7.5% from a year ago, nowhere near the Fed’s 2.0% target.  Meanwhile, nominal GDP (real GDP growth plus inflation) rose at an 8.4% annual rate in Q2 and is up 9.4% from a year ago.  The US economy recovered rapidly from re-opening in 2021.  That period of rapid growth is now over.  But that doesn’t mean we should take the headline from today’s report at face value and that the US is in a recession.  The Fed has a lot more work to do before monetary policy is tight enough to induce a recession.  Other news this morning is consistent with continued moderate economic growth.  Initial claims for unemployment insurance declined 2,000 last week to 243,000.  Continuing claims declined 19,000 to 1.415 million.  These figures suggest another month of job growth in August.  On the housing front, pending home sales, which are contracts on existing homes, declined 1.0% in July, suggesting another month of tepid existing home sales in August.

Click here for a PDF version

Posted on Thursday, August 25, 2022 @ 12:06 PM • Post Link Share: 
Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2022 All rights reserved.