Sunny pundits were chanting a special number over the past few months: 3.3 percent.
That's how fast the economy grew in the second quarter from a year ago. Except it didn't. Today, revisions to the data show gross domestic product grew more slowly, at an annualized 2.8 percent rate. Upward momentum is welcome, but there are lots of worrying signs. Gross private investment fell 11.5 percent, accelerating from a 5.8 percent decline in the first quarter. The biggest revision was consumption—1.7 percent from 1.2 percent—which bodes poorly for the current pace of consumer spending.
A couple of points from Bank of New York currency strategist Michael Woolfolk:
Expect net exports to continue offsetting the collapse in residential housing which is subtracting about -1.0% from GDP in each of the last seven quarters. The swing factor remains personal consumption, or the almighty US consumer. Amidst rising unemployment, falling stock prices and the lowest level of confidence in decades, it may be too late to avoid a technical recession early next year.
But consumption is already looking pallid as consumers react to all the bad news coming out of the financial sector. Nomura Securities notes:
Unfortunately, available third quarter data point to an outright decline in consumer spending in the third quarter, which would be the first quarterly drop in 17 years.