Good 2Q GDP report could mean an even stronger 3Q report

August 27, 2009

The bullish Brian Wesbury and Bob Stein of First Trust find today’s GDP report (2Q was down an unrevised 1.0 percent) to be, well bullish:

The first reason is that inventories were even leaner than previously reported, meaning companies have more room to re-stock shelves and showrooms in the months ahead. Second, corporate profits jumped at a 24.9% annual rate in Q2 on top of a 22.8% rate of increase in Q1. Notably, all the increase in profits in Q2 was due to domestic operations, not earnings generated abroad. Soon, these profits are going to translate into more business investment and more hiring in the US.  … Given the improved details in the Q2 GDP report and the decline in claims so far this quarter, we are raising our forecast for the Q3 real GDP growth rate to 4%. We had been forecasting a 3% growth rate for Q3 since the start of this year. We maintained this forecast even as many other economists became hysterically pessimistic, claiming zero positive growth until 2010. Now we are finding that even our forecast for the early stages of this V-shaped recovery was not strong enough.

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