GDP and Durable Goods Pancake Growth

factoryTwo economic readings will be the talk of the market on Wednesday. The first is a very poor turnout of first quarter gross domestic product (GDP) revision. The second is a durable goods report for the month of May, which looks dismal on the surface but gets better when you peel back the layers of the onion.

Real GDP in the first quarter was already negative, but the revisions just went from negative to bad, to atrocious. The first estimate was a 0.1% drop, but that was given a preliminary revision of a drop of 1.0%. And the final revision went to a truly dismal 2.9% drop. Bloomberg was looking for the final revision to drop to -1.8%, and this was worse than every single economist was looking for.

May's durable goods reading was also a stinker. Be advised that durable goods reports are often the most volatile on a month-to-month basis because the report contains so many moving parts. Still, this is a key component of the U.S. production, and ultimately what helps to make up future GDP.

durable goods fell by 1.0% in May. The prior month was a gain of 0.8%, and Bloomberg was calling for a gain of 0.4% in May. So -1.0% rather than a gain of 0.4% — dismal. On an ex-transportation basis, the reading was not quite as bad at -0.1% (versus a consensus of a 0.3% gain). Ex-defense, durable goods were up by 0.6%.

Now, if you look at the real core number that is non-defense capital goods and excluding aircraft, then May's reading would be a gain of 0.7%. Suddenly things do not sound too bad after all.

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