GDP Clocks In at 3.4%

The 2Q2007 advance GDP number was released today by the Bureau of Economic Analysis. At 3.4% it was above economist expectations, but it is still subject to revision. This is definitely a stronger number than in Q1 when the BEA revised GDP down to 0.6% from 0.7%. Combined, the economy grew at an annual rate of roughly 2% during H1. This is below trend growth and definitely falls into the 'growth recession' range. Here are the important details from the report:

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.9 percent in the second quarter, compared with an increase of 3.8 percent in the first. Excluding food and energy prices, the price index for gross domestic purchases increased 1.7 percent in the second quarter, compared with 3.1 percent in the first.

Real personal consumption expenditures increased 1.3 percent in the second quarter, compared with an increase of 3.7 percent in the first. Durable good increased 1.6 percent, compared with an increase of 8.8 percent. Nondurable goods decreased 0.8 percent, in contrast to an increase of 3.0 percent.

The price data was good news because core inflation appears to be moderating as the Fed expected. This may give the Fed the flexibility to squeeze in a rate cut later this year if necessary. In fact the futures markets are predicting one rate cut by December.

The Real PCE numbers and durable goods numbers were dismal however and if consumers and businesses continue to slow spending that would have a severe negative impact on the economy. Taken as a whole todays report contained mostly good news, although some, including Nouriel Roubini remain quite pessimistic about H2.