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US: Q2 GDP at 1.9% slightly weaker than expected

Fri, Aug 1 2008, 08:16 GMT
by KBC Market Research Desk

KBC Bank

during the summer break there will be no sunrise report next week, we weill resume the publication from august 11

Q2 GDP grew by 1.9% according to the BEA advance report, compared to the consensus estimate of 2.3%, while the Q1 figure was downwardly revised from 1.0% to 0.9% and Q4 2007 from 0.6% to -0.2%. This raises the odds that the US economy slid into recession at the end of 2007. The official dating will be done later by the NABE. Looking at the details, consumption growth was weak, up only 1.5% after 1.0% in Q1, despite the distribution of the tax rebate checks. Government consumption rose 3.4% (from 1.9%), while private investment dropped by a steep 14.8% (with residential investment 15.6% lower and software and equipment falling 3.4%). Inventories fell 62.2 billion $ (from -10.2 billion $) being a drag of almost 2% on growth and net exports made a positive contribution of 66.8 billion $ to growth, indicating that the US economy is feeling the advantages from the weaker US dollar. The headline growth figure and the details are weak, especially as the tax rebate brought only temporary relief that will disappear in H2 of 2007. The negative contribution of inventories (-1.92% to the GDP figure) on the other hand won’t be repeated to the same extend in H2.

The Chicago PMI index unexpectedly increased from 49.6 in June to 50.8 in July, which is the first jump above the benchmark level of 50.0 in six months. Looking at the details, production (49.2 from 45.1), new orders (53.5 from 52.0) and order backlogs (45.7 from 42.3), which are important sub-indices, came out higher. Inventories increased from 50.5 to 54.9, and also delivery times (60.8) jumped higher, but these are probably influenced by the Midwest floods which seems still affecting logistics. Employment deteriorated from 46.7 in June to 45.9 in July. Prices paid were again higher, coming out at the sky-high level of 90.7. Although this figure came out better than expected, we shouldn’t be too positive for today’s ISM’s as the correlation between the Chicago PMI and manufacturing ISM loosened considerably during recent months.

EMU: Labour market shows signs of a weakening

The euro zone CPI estimate came out at 4.1% Y/Y in July, which is in line with the consensus, but slightly higher than in June (4.0% Y/Y). This is no complete surprise as inflation rates were already higher in Belgium and unchanged in Germany while we were hoping for a slight fall. The euro zone unemployment rate in June came out at 7.3%, while the May figure was upwardly revised from 7.2% to 7.3%. This is higher than the consensus estimate, but no surprise as labour market conditions are showing signs of a weakening.

In Germany, the number of people unemployed fell 20 000 in July, after falling a revised 36 000 in June, which brings the total number of unemployed to 3.25 million. The unemployment rate was unchanged at 7.8, in line with the expectations. Jobs created fell from 14 000 in May to 13 000 in June, which indicates that companies are less willing to hire new workers.

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Published on  Fri, Aug 1 2008, 08:38 GMT