U.S. Economy Dodges GDP Bullet

The latest revision to the key indicator showed that second-quarter growth was barely positive -- but not the negative number many had feared

The preliminary second-quarter gross domestic product (GDP) figures released Wednesday, Aug. 28, provided good news for the U.S. economy, and not just because the figure remained in positive territory.

The mix included the hefty $11.5 billion downward revision in inventories that had been expected, which was a relief given that this leaves the pace of inventory liquidation at an unsustainably weak $38.4 billion rate that will likely be revised by the fourth quarter of this year -- or at least the first quarter of 2002. In addition, imports were not revised downward by as much as expected, which bodes well for demand, and consumption spending was revised unexpectedly upward to a 2.5% growth pace from the 2.1% rate reported earlier. The combination of these two upside surprises left final sales with only a small downward revision to 0.6% growth from growth of 0.7%. So the small "net upside surprise" to GDP was in the form of sales, thus leaving a better trajectory for the third and fourth quarters.

Overall, the second-quarter GDP figure may still be revised into negative territory with the final revision next month, and the the third-quarter numbers may still be weak, but today's data diminished both risks for the markets.

From Standard & Poor's Global Markets