Final Read U.S. Q2 Economic Growth Revised Down

Daily Forex Fundamentals | Written by RBC Financial Group | Sep 26 08 13:28 GMT |

The final estimate of Q2 GDP growth was revised down to 2.8% from the preliminary estimated growth rate of 3.3%. Expectations had been for the growth rate to remain unchanged. The revised growth number does still indicate an improving trend relative to a gain of only 0.9% in the first quarter and a 0.2% decline in the fourth quarter of last year. This upward trend was in part attributable to the tax rebate cheques sent out in the quarter, although this support is clearly showing signs of waning in the third quarter. The downward revision to second-quarter growth was largely a reflection of greater weakness in both consumer spending and net exports. Growth in the former was revised down to 1.2% from the previously estimated 1.7%. The contribution to growth from net exports is still a significant 2.9 percentage points, although that is down from the previously estimated 3.1 percentage points. Some offset was provided from slightly stronger growth in business investment (2.5% from 2.2%) and less of a decline in residential investment (-13.3% from -15.7%). Annualized quarterly growth in the second-quarter core PCE deflator, the key inflation measure in the GDP report, was revised up slightly to 2.2% from the 2.1% contained in the preliminary report. Today's revision still manages to retain the spurt in growth in the second quarter that was in part fuelled by tax rebate cheques that were sent out in the quarter as part of the U.S. government's fiscal stimulus package. However, this package was always viewed as providing only a temporary boost to growth and that any sustained improvement was more contingent on improving financial markets. With that clearly not happening, economic growth is expected to drop back down to around 1% on average during the second half of this year. The urgency to pass the bailout package currently in front of Congress is meant to help turn financial markets around on a sustained basis and prevent this weak economic growth from persisting in 2009. RBC Financial Group http://www.rbc.com The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.