How Come It Feels Like a Recession?

August 29, 2008

The preliminary GDP release yesterday provided a number of surprises. The first surprise was not that GDP was higher than the advance release (given the June trade figures reported earlier this month), but rather that at 3.3% it exceeded the 2.8% (SAAR) of the consensus [0]. The second surprise is that the reduction in imports comprises an even larger proportion of the overall growth.

Let’s turn first to the surprise. The change in the contribution due to net exports was anticipated, given the release of the monthly trade figures for June, which were unavailable at the time of the advance release. However, one big change was in the contribution of inventories. Apparently, they decreased by a smaller amount (-1.44 ppts vs. originally estimated -1.92 ppts). While this increases GDP in 08Q2, this might suggest a bigger reduction in output in the current quarter, as producers seek to match inventory stocks to anticipated output.

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