US Q2 GDP Indications

The larger than expected real US trade deficit warns that economists may revise down expectations for Q2 US GDP. The preliminary estimate is slated for release at the end of the month. Although there has been increased talk of a double dip in the US, the risk is that even with the adjustment in expectations, Q2 GDP is very much in line with, and possibly even higher than Q1's 2.7% pace.

Consumption was important for Q1 GDP, accounting for a little more than 2% of the 2.7% increase. The pace has slowed in Q2, but may still account for 1.5-1.75 percentage points of Q2 GDP growth. Barring a significant surprise the June trade figures (estimate for Q2 GDP is due out prior to the June trade balance), the net export function likely was a drag on GDP.

The US has not released much inventory data, but inventory accumulation is likely taking place as at a slower pace than Q1. Capital investment may be a small positive. The government sector was a drag on Q1 GDP as state and local government cuts more than offset the increased Federal spending.

On balance, the risk is that consensus estimates for GDP are revised down toward 2.75%-3.0%, partly based on data already received and partly in anticipation of more of the same.