I find it a little fascinating that the government revised down the last three years of GDP growth and the current "advance" GDP for the 2Q at 2.4 % , will no doubt be revised lower, the US economy is slowing from the "sugar rush" of stimulis and as the economist, David Rosenberg points out, we are facing headwinds that going forward, don't bode well for the economy.

  Finally, with the talk of deflationary impacts not only here , but around the world and economies slowing(including China), at what point does that impact(if it grows, or more precise deflationary perceptions), grain prices going forward??, and remember 2008 when we just knew we were going to run out of wheat? and demand destruction followed, my bet is that their is some level of price where demand will be curtailed and it is much lower than in 2008. Once the "hot" money has run it's course and their is no one left to buy, wheat will become subject to the law of gravity once again, but if I only knew when that was going to happen!!!.

Inventory Rebuilding Runs Its Course

There are pages of revisions, that is just a sample. One of the key findings in the report concerns inventory rebuilding. Dave Rosenberg discusses inventories and the GDP in general in Slow Motion Recovery.

The big story in the second quarter as has been the case for much of the past year was the contribution from inventories – there was a “build” of $75.7 billion and this added over a percentage point to headline GDP growth. This follows a “build” of $44 billion in the first quarter so this is no longer the case that companies are merely reducing the pace of inventory withdrawal. Businesses actually added to their stockpiles at the fastest rate in five years. And with sales lagging behind, this inventory contribution is likely to fade fast in coming quarters. Real final sales – representing the rest of GDP (excluding inventories) – came in at a paltry 1.3% annual rate last quarter and has averaged 1.2% since the economy hit rock bottom a year ago in what is clearly the weakest revival in recorded history.

Normally, real final sales are expanding at closer to a 4% annual rate in the year after a recession officially ends. Then again, we haven’t heard anything official just yet about the one that began in December 2007 – and so the fact that it is averaging at around one-third that typical pace in the face of unprecedented policy stimulus is rather telling. And frightening.

Looking at the components of GDP, it appears as though the economy is set to slow even further and a flattening in Q3 and perhaps even contraction by Q4, barring some positive exogenous shock, cannot be ruled out.

If indeed, the inventory cycle is behind us, then what we have on our hands is an underlying baseline trend in GDP of 1.2% at an annual rate. And if we are correct in our assumption that the looming withdrawal of fiscal stimulus at the federal level and the cutbacks at the state and local government level subtract 1.5% from growth in the coming year, then it begs the question: How exactly does the economy escape a renewed moderate contraction over the next four to six quarters, barring some unforeseen positive boost? In turn, how does a strong possibility of such a contraction square with consensus views of a 35% surge in corporate profits to new record highs as early as next year? The answers to these questions are as painful as they are obvious.