The three-year revision to GDP incorporated updated numbers from a variety of sources. Annual revisions pushed the y/y change for personal consumption up from an average of 2.9% to 3.1% over the Q4 2013 to Q1 2017 period. It is a reminder that the economy has not been as soft as portrayed: this is a respectable rate of increase, consistent with the steady decline in the jobless rate.
Real GDP growth accelerated from 1.2% q/q (annualised) in Q1 to 2.6% q/q in Q2. Personal consumption increased 2.8% q/q compared with a rise of 1.9% q/q in Q1. The retail sales data has been strong, contrary to some ‘reports’. The June data has not been released yet, but the 3m/3m annualised rate for real retail sales showed a rise of 4.3% in May.
However, the y/y for corporate profits (before tax, with IVA and CCAdj) was unchanged in Q1 following the annual revisions. The BEA profit numbers still correlate well with the dip in core inflation, following a surprise drop in Q1. With IVA (inventory valuation adjustments) and CCAdj (capital consumption adjustments), profits fell 2.1% q/q (non-annualised). The y/y rate tumbled from 8.7% to 3.3%.
Domestic non-financial profits fell 6.3% y/y in Q1: this compares with the previous estimate of -5.0% y/y. The level of profits has been revised up (3.6% on this basis) as a result of the three-year revamp of the GDP data. Nonetheless, the decline over the past year now looks steeper. The y/y for manufacturing has been revised from -10.9% to -12.7%. Services has been revised from -3.3% y/y to -3.8% y/y.
Summary
- Higher consumption consistent with strong job gains over 2014/15
- Software spending revised up: more adjustments to follow
- Level of profits revised up in 2015, but downturn over past year (to Q1 2017) more pronounced
