The Commerce Department released its first report of US Q2 GDP today. The US economy grew at a 4% rate in Q2 according to this release. This follows a 2.1% contraction in Q1. Things weren’t that bad the first 3 months of the year and things aren’t that great right now. The truth is somewhere in the middle. If you average the numbers, we’re at an annual run rate of 2% GDP growth. Certainly not great growth but it’s not a recession either.
What does it all mean? Consider this information: business inventories contributed a substantial portion of the negative GDP result in Q1. They reversed and contributed a positive portion to the Q2 number. Higher inventory numbers contribute positively to GDP and is one of the reasons many economists are starting to question GDP as the best measure of the economy . If you talk to most business owners, they’d prefer less inventory to more inventory. Building inventory consumes cash. Inventory builds for 2 reasons: Things have slowed down and products aren’t selling as fast as anticipated and/or businesses expect things to pick up and want to have inventory on hand to sell when demand improves. The naysayers are already warning of slower growth for the rest of the year, as the inventory build will need to be worked through. The Pollyannas are saying the inventory build shows an increase in confidence in future demand. My gut tells me we had an inventory build in Q2 for both reasons. Certain products/industries have seen a slowdown and built inventory. Other products/industries have seen things pick up and are preparing to meet demand. We can see that within our business – we have certain product lines selling very well and others that have tailed off.
Keep in mind this GDP number will be revised several times over the next few weeks. There will be lots of noise around each release. Pockets of growth exist everywhere – focus on those and your business will grow faster than GDP. Segments within the energy industry, food industry, and logistics industry are good places to start.