Hard to have nailed this number when we anchored on Consumption (C) and it hit our tracker at +2.83% GDP contribution… but:
- Inventories: Investment tanked, driven by a big -1.2% drag from inventories as the liquidation crescendoed in its 5th consecutive quarter of drawdown. Resi investment growth reversed (-13.9% QoQ) while Non-Resi investment continued to flag with structure and equipment spending down -8% and -3.5%, respectively.
- Government Expenditures: Defense Spending and State and Local Government expenditures drove the first time negative contribution from “G” since 4Q14.
- Reversal in Deflator from Q1: GDP deflator was revised higher from last quarter which put a lid on the print: The deflator ticked up to 2.2% in 2Q (vs. 0.5% prior) with the Core PCE price index coming in at 1.7%. It’s a good thing they didn’t use this Deflator # in Q116, or q/q GDP would have been negative.
Net net, our TREND (multi-quarter) call for 2016 #GrowthSlowing remains firmly intact. Looking back, Real y/y GDP growth peaked in Q1-Q2 2015 at 3.3% and 3.0%, respectively, and has now been in discrete retreat for 5-quarters.
All-time highs for US stocks on month-end on this? Obviously. Some big cap Tech earnings were fantastic, but from a top-down strategist/economist perspective, I’ve never seen the GDP and EPS growth bulls right for so many of the wrong reasons. Staying with the Long Bond, Gold, Utes, etc. as the data continues to confirm slower and lower for longer (i.e. we’re a 1.5% +/- economy) both domestically and globally.
Don’t forget that Q3 is the peak 2yr comp of the Consumption Cycle (Real PCE Growth), capital spending remains in recession, labor continues to grow at a premium to output (i.e. productivity/profitability ↓) and the larger 2nd derivative trend in payroll, income and spending growth remains negative.
KM
