The debt ceiling debate continues to rage on as the more important message continues to be ignored. The macro economy appears to continue to deteriorate and it’s hard to imagine that this bickering in Washington is doing anything to help. In all likelihood, the end result will be further spending cuts and a weaker economy as the balance sheet recession continues.
The latest macro news from this morning included Q2 GDP. The figure wasn’t particularly inspiring. Real GDP officially comes in at 1.3% for Q2 with very sluggish end demand. This means that Real GDP declined EVERY quarter since the inception of QE2. As many of us suggested at the time, QE2 was more likely to exert pressure on the economy than act like a stimulus. That appears to have been exactly right. Econoday has the details on the Q2 GDP figures:
“It’s official but it’s worse than earlier believed. The soft patch continued into the second quarter as GDP growth for posted at a very sluggish 1.3 percent annualized rise, following a downwardly revised increase of 0.4 percent in the first quarter. Analysts had forecast a 1.9 percent boost for the latest quarter and the first quarter was previously estimated at 1.9 percent. Today’s report includes standard annual revisions going back three years for most series.
Demand numbers improved but barely. Final sales of domestic product improved to up an annualized 1.1 percent from 0.0 percent (unchanged) in the first quarter (previously 0.6 percent). Final sales to domestic purchasers also nudged up, rising 0.5 percent from 0.4 percent in the prior period (previously 0.4 percent).
Most of the anemia in the second quarter came from the consumer sector which came to a screeching halt with a 0.1 annualized percent uptick in the first quarter, following a 2.1 percent rise the prior quarter. Government purchases declined modestly while gains were seen in net exports, business investment in structures and equipment, and even residential investment. Inventories nudged up.
Economy-wide inflation according to the GDP price index showed only incremental change in momentum, rising 2.3 percent, following an increase of 2.5 percent in the first quarter. Analysts expected a 2.0 percent gain.”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.