On Thursday (July 25th), the initial Q2 GDP estimate, at 2.8% (annual rate) was, to say the least, quite a surprise. The consensus view was +2.0%, and the +2.8% growth rate doubled Q1’s 1.4%. The equity markets’ initial response, however, was a tepid one for most of the day. And, by the end of the day, markets succumbed to selling pressure (Nasdaq: -0.9%, S&P500: -0.5%). Of the 2.8%, unwanted inventory accumulation accounted for +0.8 percentage points, and government spending growth added another +0.5 percentage points. Another positive for GDP was a drawdown in the savings rate (to 3.5% in Q2 from Q1’s 3.8% and over 5.0% a year ago), no doubt aided by the wealth effect from a rising equity market, at least for higher income consumers, and by record high credit card balances. In real terms, consumer spending rose at a 2.3% annual rate while after-tax personal income only rose…
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