Q2 Better , Flattered by Downward Revision to Q1

The US economy contracted at a 1% annualized pace in the second, a bit better than the consensus expected and Q1 was revised to -6.4% from -5.5%. Benchmark revisions reveal weaker growth on balance in the recent past as well. Consumer spending fell 1.2%, nearly twice the pace economists had expected. The net export function added 1.4 percentage points to GDP. Inventory de-stocking continued apace, with a record drawdown $156 bln, vs $127.4 bln in Q1. This subtracted 0.8% from the GDP figure. It took 2.3% of Q1 GDP. The slide in business investment slowed (-9% vs -36.4% in Q1), though residential construction continued to fall. Core PCE rose 2% in Q2, a bit less than expected and 1.1% in Q1. The employment cost data hit a new record low of 1.8% year-over-year, suggesting that core inflation is likely to remain subdued.

The dollar firming initially on the news against the majors and emerging market currencies. With July Chicago and Milwaukee PMIs out shortly and the month-end fix awaited, it is not clear if these dollar gains are sustainable.