The first estimate of second quarter GDP was stronger than expected with growth pegged at 2.8% compared to 1.4% in the first quarter. After subtracting -0.42% from GDP in the first quarter inventories were rebuilt in the second quarter and added +0.82% to GDP. I discussed how a decline in inventories can overstate weakness or strength in any given quarter in the July Macro Tides. “ A drop in inventories lowers GDP in the current quarter, but often lifts future GDP when inventories are replenished” . This is exactly what occurred in the first and second quarter as firms rebuilt inventories...
