The biggest surprises was that inventories were raised by $3.3 billion in the second quarter, instead of being lowered slightly. In addition, local government spending was revised slightly higher to only a 0.2% rate of decline, vs. a 0.7% drop, and exports were revised downward only slightly, leaving a 1.0% second-quarter rate of decline.
These small upside surprises were offset by the lack of a net upward boost in second-quarter consumption growth, which remained at a still impressive 3.8%. Imports posted the expected upward revision to an 8.8% second-quarter growth rate, and fixed investment was also as expected with a 7.1% growth rate that benefited from an upward boost in residential construction.
In total, the second-quarter data still indicate that sales outpaced output, and entered the third quarter on a robust trajectory, leaving substantial room for an inventory bounceback as we approach yearend. Given rapid growth in nearly all sales measures through the months of the third quarter, we will continue to expect a 6.2% growth rate for real GDP in the third quarter and a 5.0% growth rate in the fourth quarter, with respective chain price growth of 1.4% and 1.8%. Consumer Sentiment Falls
The final September reading for the University of Michigan's Consumer Sentiment Index slipped to 87.7 from the preliminary reading of 88.2, which also left it below the final August reading of 89.3.
As for the components, the current conditions index dipped to 98.4 from the preliminary reading of 98.8 and a final August reading of 99.7. The expectations component fell to 80.8 from a preliminary 81.3 and a final August reading of 82.5.
Overall, the total index has held to a fairly narrow range since the sharp rebound seen in the spring. The recent moderation suggests that the flurry of negative press about the "jobless" aspect of the ongoing recovery may be weighing on sentiment. Indeed, while sentiment levels remain at relatively healthy levels, the upside will likely be limited until concrete signs of labor market improvement emerge.
Regardless, consumption growth in the second quarter improved to 3.8%, following the 2% gain in the first quarter and the 1.7% increase in the fourth. And given trends in sales through August, consumption growth in the third quarter is on track to top 6%. Note that the current level of sentiment remains roughly in-line with the historical average for this series, which supports a healthy level of consumption going forward. From MMS International