Q1 Real GDP Minor Upward Revisions, Outlook for Q2 Unchanged
Real gross domestic product (GDP) of the U.S. declined at an annual rate of 5.5% in the first quarter of 2009, which is a small upward revision from the preliminary estimate of a 5.7% drop.
Upward revisions of inventories, net exports, and government spending more than offset downward revisions of consumer spending and investment expenditures (both residential and non-residential) to yield an upward revision of the headline number. The final estimate also included a small upward revision of corporate profits.
The more important issue is the outlook for the rest of 2009. We are projecting a contraction of real GDP in the second and third quarters and a small increase in the final three months of 2009. The unemployment rate is expected to peak in the first-half of 2010, while inflation will not present problems until 2011/2012.
Jobless Claims – Temporary Setback or Reversal of Improvement?
Initial jobless claims rose 15,000 to 627,000 during the week ended June 19. The initial claims estimate of last week was revised to 612,000 from the prior count of 608,000. Continuing claims, which lag initial jobless claims by one week, advanced to 6.738 million from 6.709 million. The insured unemployment rate held steady at 5.0%. The pertinent question is if the latest jump in initial jobless claims represents a second leg of weakness in the demand for labor. The recent low of initial jobless claims is 605,000 and the cycle high is 674,000. The path of economic recovery is fraught with ups and downs. Based on other reports indicating that a nascent stabilization is underway, for now, the latest hike in jobless claims appears to be a temporary setback. Given the large fiscal stimulus that is underway and the aggressive quantitative easing put in place, it would be a surprise to see a further round of layoffs and a larger number of applicants for unemployment insurance.
