Fast Comment US GDP strong enough to cast doubts about QE3

US real GDP rose at a 1.5 percent annual rate in Q2, according to the first of three data releases on the quarter from the Commerce Department. While the median forecast among analysts surveyed by Bloomberg had suggested a 1.4 percent increase, the data seems to dispel fears about a more pronounced slowdown. Nevertheless, the Q2 data does suggest that the economy has been slowing. Revised data showed that Q1 growth amounted to 2.0 rather than 1.9 percent estimated previously. Q4 data was also revised up, from 3.0 to 4.1 percent.

Private consumption grew at the slowest pace in a year in Q2 as household demand was dented by sluggish employment growth. Payroll gains averaged 75, 000 in Q2, down from 226, 000 in Q1. Consumers were also held back by fears related to the looming “fiscal cliff” in 2013, the expiration of Bush and Obama temporary tax cuts. Those worries do, however, seem less warranted after the Senate approved a Democratic plan to extend tax relief for all but the wealthiest Americans. The European debt crisis may also have contributed to keep a lid on spending.

Today, the Commerce Department also released revisions to national accounts dating back to the first quarter of 2009. The new data suggested that the deepest recession in the post-World War II period was slightly less pronounced than previously believed. During the 2007-2009 recession, real GDP contracted by 4.7 percent, revised down from an earlier estimate suggesting a 5.1 percent loss. While the recovery is “frustratingly slow” according to Federal Reserve Chairman Ben Bernanke in his testimony to Congress last week, today’s numbers look strong enough to warrant a sceptical view on the likelihood of another round of quantitative easing. The revised historical data may have limited relevance for the Fed as the US Central Bank may not change its view on the available slack in the economy much.