This is far from the first time that initially positive GDP readings were later revised into negative territory. Fourth quarter growth, initially posted at 0.6% of GDP, was revised down to -0.25 today and first quarter to 0.9% from 1.0%.
But what appears to have gotten the market’s attention was that the rebate checks had such little impact on the quarter just ended. Second quarter came in at 1.9% (frankly, even than appears better than it feels). Yet critics said the rebates were likely to be ineffective, since they put money in the hands of consumers less likely to spend. Indeed, by Gary Shilling’s calculus, consumers lived up to their plans to save 80%of the rebate.
From the Wall Street Journal:
The soft U.S. economy sped up in the spring but still rose less than expected despite tax rebates handed out to spur growth, a report said Thursday.The Commerce Department reported gross domestic product climbed 1.9% in the second quarter. Wall Street expected 2.3% growth. First-quarter GDP grew 0.9% and the fourth quarter fell 0.2%….
A Labor Department report Thursday showed the number of U.S. workers filing new claims for unemployment benefits jumped to a five-year high last week. Initial claims for unemployment benefits rose 44,000 to 448,000 after seasonal adjustments in the week ended July 26.
The soft labor market is restraining labor costs, which rose 0.7% during the second quarter, another Labor Department report Thursday said. Wages and salaries grew 0.7%. Benefit costs advanced 0.6%. The mild increases are unfortunate for the average worker — but helpful for central bankers.
“For the Fed’s part, the lackluster wage growth greatly enhances their ability to control inflation without further damage to near-term growth,” said Global Insight analyst Kenneth Beauchemin.
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… consumers lived up to their plans to save 80%of the rebate…
thus providing banks with some much-needed cash deposits.