US: Upward revisions to Q2 growth weaken the current recession argument – Wells Fargo

The second estimate of Q2 GDP showed the US economy contracted at a slower-than-expected rate of 0.6%. Upward revisions to underlying demand and a first read from the income side weakens the argument that the economy is currently in recession, point out analysts at Wells Fargo. 

Key Quotes: 

“The U.S. economy contracted at a 0.6% annualized rate in the second quarter according to the second estimate of GDP, which is slightly better than previously thought. While Q2 still marks the second-consecutive decline in real GDP growth, the upward revisions weaken the current recession argument.”

“Despite some upward revisions, second quarter weakness still reflects a genuine slowing in economic activity. Real final sales to domestic purchasers, an indication of underlying demand, still came in negative, contracting at a 0.2% annualized pace during the quarter.”

“But when measured from the income side, real GDI grew at an annualized rate of 1.4% in the second quarter, suggesting an expansion in economic activity. In theory, growth in GDP and GDI should be identical, but they rarely are due to data errors and omissions. Growth on the income side of the national income and product accounts (NIPA) is more in line with the "core" parts of the spending side, and further adds to the argument that the economy is slowing but not yet broadly contracting.”