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2Q22 GDP: 2nd Quarter of Contraction
July 28, 2022
Bottom Line: The advance reading of 2nd Quarter GDP showed a contraction of -0.9% after 1st Quarter's contraction of -1.6%. While there has been even higher than usual volatility in categories like inventories and trade (inventories knocked 2 points off 2Q growth and trade hit 1st Quarter for over 3 points), the 2Q report showed slowness in key parts of the economy. Final domestic demand, a critical metric of the underlying trend, fell -0.3% in 2Q after rising 2% in Q1. Moreover, real final sales have risen just 0.3% annualized in the last four quarters. Finally, residential fixed investment was a drag of 0.7% in 2Q as the housing market slowed sharply on the back of higher mortgage rates. Overall, while always volatile and prone to revision, the advanced reading of 2Q dashed hopes that economic activity has actually been better than hoped. Nominal growth remains positive, but not strong enough to make up for the increases in prices. And this report brings up the question of the next shoe to drop -- it now seems only a matter of time until we see material weakness in labor markets.Gross Domestic Product FELL by 0.9% in the 2nd Quarter, lower than market expectations for an increase of 8.0%. Economic activity was 1.6% ABOVE its year-ago level.
Inventory Investment FELL by $106.9 billion, subtracting 2.01 percentage points from overall economic activity. Consequently, Real Final Sales ROSE by 1.1% and was 0.3% ABOVE its year-ago level. Additionally, Imports ROSE by 3.1% and Exports ROSE by 18.0% so Net Exports ROSE by $70.0 billion. This implies thatReal Final Domestic Demand FELL by 0.3% and was 1.1% ABOVE its year-ago level.
Consumer Spending ROSE by 1.0%, contributing 0.70 percentage points to economic growth. Business Investment FELL by 0.1%, subtracting 0.01 percentage points to GDP. Intellectual property products increased by 9.2% while non-residential structures declined by 11.8%. Residential Investment FELL by 14.0%, subtracting 0.71 percentage points to economic growth. Finally, Government Purchases FELL by 1.9%, subtracting 0.33 percentage points to GDP. This was its 6th negative contribution in the last 12 quarters.
The GDP Price Index ROSE by 8.8%, compared with market expectations of 8.0%. This is also 7.6% ABOVE its year-ago level.
Inventory Investment FELL by $106.9 billion, subtracting 2.01 percentage points from overall economic activity. Consequently, Real Final Sales ROSE by 1.1% and was 0.3% ABOVE its year-ago level. Additionally, Imports ROSE by 3.1% and Exports ROSE by 18.0% so Net Exports ROSE by $70.0 billion. This implies thatReal Final Domestic Demand FELL by 0.3% and was 1.1% ABOVE its year-ago level.
Consumer Spending ROSE by 1.0%, contributing 0.70 percentage points to economic growth. Business Investment FELL by 0.1%, subtracting 0.01 percentage points to GDP. Intellectual property products increased by 9.2% while non-residential structures declined by 11.8%. Residential Investment FELL by 14.0%, subtracting 0.71 percentage points to economic growth. Finally, Government Purchases FELL by 1.9%, subtracting 0.33 percentage points to GDP. This was its 6th negative contribution in the last 12 quarters.
The GDP Price Index ROSE by 8.8%, compared with market expectations of 8.0%. This is also 7.6% ABOVE its year-ago level.
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Contingent Macro