by Calculated Risk on 7/30/2010 02:04:00 PM

In the previous post I confused annual rates and quarterly rates. Sorry.

Real PCE is 0.85% below the pre-recession peak, so PCE would have to grow at 3.4% in Q3 for the economy to be back to the pre-recession level.

Real GDP is 1.1% below the pre-recession peak, so GDP would have to grow at 4.3% in Q3 to be back to the pre-recession level.

With a 2nd half slowdown, I don't expect to reach those levels until the end of the year or in 2011.

Note: the graphs and quarterly data are all correct - just the annual comment that I added was in error (ht Tehan)

by Calculated Risk on 7/30/2010 11:32:00 AM

Error Correction: Sorry - I confused annual rates and quarterly rates.

Real GDP is 1.1% below the pre-recession peak, so if GDP would have to grow at 4.4% in Q3 the economy to be back to the pre-recession level.

Real PCE is 0.85% below the pre-recession peak, so PCE would have to grow at 3.4% in Q3 to be back to the pre-recession level.
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These two graphs show the revisions for real GDP and PCE.

Click on graph for larger image in new window.

The recession was clearly worse than originally estimated (we suspected this already using Gross Domestic Income).

In fact real GDP in Q2 2010 was lower than originally reported for Q1 2010. And annualized real GDP is still 1.1% below the pre-recession peak. This means that real GDP would have to grow at a 4.3% rate over the next quarter to reach the recession peak.

This shows that St Louis Fed President Bullard was too optimistic in a speech last month. From Bullard in June: The Global Recovery and Monetary Policy

"As of the first quarter of 2010, real GDP stands just shy of the 2008 second quarter level, so that growth of about 1.25 percent would be sufficient to allow real GDP to surpass the previous peak. At that point, the U.S. economy would be fully "recovered" from the very sharp downturn of late 2008 and early 2009. To be clear, the 1.25 percent is a quarterly number, and would be 5.0 percent at an annual rate. Although I think that 5.0 percent at an annual rate is too much to expect for current quarter real GDP growth, it seems like a reasonable possibility over the next two quarters combined. Given these conditions, I expect the U.S. recovery in GDP to be complete in the third quarter of this year."

I disagreed with him, and pointed out that GDI suggested downward revisions.

Real PCE was revised down even more.

Annualized real PCE is now 0.85% below the pre-recession peak, and would have to grow 3.4% over the next quarter to reach the previous peak.

Cleveland Fed President Sandra Pianalto had it right in February: When the Small Stuff Is Anything But Small

[I]t may take years just to get back to the level of output we enjoyed in 2007, just before the economic crisis began.

If things go well, the economy will be back to pre-recession levels later this year or in 2011. No wonder there is so little investment. And no wonder there is so little hiring!

by Calculated Risk on 7/30/2010 09:45:00 AM

From the Institute for Supply Management – Chicago:

The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER rebounded, marking a tenth month of growth.

The overall index increased to 62.3 from 59.1. Note: any number above 50 shows expansion.

Employment improved to 56.6 from 54.2 in June.

The new orders index increased to 64.6 from 59.1.

Overall this was a positive report. The national ISM manufacturing index will be released on Monday.

by Calculated Risk on 7/30/2010 08:30:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent.

A few key numbers:

"Real personal consumption expenditures increased 1.6 percent in the second quarter, compared with an increase of 1.9 percent in the first."

PCE is slowing.

Investment: Nonresidential structures increased 5.2 percent, in contrast to a decrease of 17.8 percent. Equipment and software increased 21.9 percent, compared with an increase of 20.4 percent. Real residential fixed investment increased 27.9 percent, in contrast to a decrease of 12.3 percent.

Residential investment was boosted by the tax credit and will decline in Q3.

"The change in real private inventories added 1.05 percentage points to the second-quarter changein real GDP after adding 2.64 percentage points to the first-quarter change."

That is probably the end of the inventory adjustment.

And here is a summary of the revisions:

Quarter	GDP	GDP Revised	Change
2007-I	1.2%	0.9%	-0.3%
2007-II	3.2%	3.2%	0.0%
2007-III	3.6%	2.3%	-1.3%
2007-IV	2.1%	2.9%	0.8%
2008-I	-0.7%	-0.7%	0.0%
2008-II	1.5%	0.6%	-0.9%
2008-III	-2.7%	-4.0%	-1.3%
2008-IV	-5.4%	-6.8%	-1.4%
2009-I	-6.4%	-4.9%	1.5%
2009-II	-0.7%	-0.7%	0.0%
2009-III	2.2%	1.6%	-0.6%
2009-IV	5.6%	5.0%	-0.6%
2010-I	2.7%	3.7%	1.0%
2010-II		2.4%

The recession was worse in 2008 than originally estimated.

Q1 2010 was revised up, but Q3 and Q4 2009 were revised down. So the recovery is a little weaker than originally estimated.

I'll have some graphs soon.

by Calculated Risk on 7/29/2010 11:14:00 PM

I don't follow house prices in Australia ... or Canada ... but I'm asked all the time (my answer is always: I don't know!)

But for those interested, here is an article from the Business Spectator: House prices fall 0.7% in June, flat in quarter (ht Mr Slippery)

After 17 consecutive months of solid growth, dwelling values across Australia’s capital cities recorded their first monthly decline of 0.7 per cent in June, according to the RP Data-Rismark Hedonic Home Value Index.

This was the largest monthly fall in home values since April 2008. "The June outcome follows on from a clear trend in the decline in monthly seasonally-adjusted growth rates in Australia’s capital cities," RP Data said.
...
"This represents a striking deceleration in the quarterly rate of increase in home values," RP Data said

by Calculated Risk on 7/29/2010 07:56:00 PM

From the American Trucking Association: ATA Truck Tonnage Index Fell 1.4 Percent in June

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 1.4 percent in June, although May’s reduction was revised from 0.6 percent to just 0.1 percent. May and June marked the first back-to-back contractions since March and April 2009. The latest reduction lowered the SA index from 110.1 (2000=100) in May to 108.5 in June.
...
Compared with June 2009, SA tonnage climbed 7.6 percent, which was just below May’s 7.7 percent increase and the seventh consecutive year-over-year gain. Year-to-date, tonnage is up 6.6 percent compared with the same period in 2009.

ATA Chief Economist Bob Costello said that the two sequential decreases reflect an economy that is slowing. Furthermore, growth in truck tonnage is likely to moderate in the months ahead as the economy decelerates and year-over-year comparisons become more difficult. Nevertheless, Costello believes that tonnage doesn’t have to grow very quickly at this point since industry capacity has declined so much. “Due to supply tightness in the market, any tonnage growth feels significantly better for fleets than one might expect.”

This graph from the ATA shows the Truck Tonnage Index since Jan 2006 (no larger image).

This index is at about the same level as in December 2009.

Rail traffic also weakened in June.