US Q2 GDP: Minor Revisions in the context of steep decline in growth – Wells Fargo

The second report of growth during the second quarter revised the annualized growth rate from -32.9% to -31.7%. Analysts at Wells Fargo, point out revisions were minor in terms of the underlying components and corporate profits plunged. 

Key Quotes: 

“Still, the revised swoon in second quarter real GDP remains by far the steepest rate of decline on record. The next steepest drop of 10.0% occurred in 1958. However, recent monthly indicators suggest real GDP will bounce markedly in the third quarter.”

“The revisions to the spending components were miniscule in the context of the unprecedented contraction in the economy. Real personal consumption expenditures (PCE), which accounts for two-thirds of spending in the economy, led the way with a decline of 34%. But growth in most other spending components remained deeply in negative territory.”

“Compared to a year-earlier, pre-tax profits fell 20.1% in Q2 as profitability was hammered by lockdowns, which led many businesses to either temporarily cease operation or continue under minimized capacity. The decline in domestic profits was entirely due to non-financial industries, where profits slid 15% in Q2 compared to Q1.”

“On a year-over-year basis, profits will likely remain negative through the end of 2020. Our latest forecast has profits declining by about 10% for 2020 as a whole. With the Q2 decline having come in as we expected, this forecast remains largely intact.”