Q3 GDP Expected at 2.8%

Just looking ahead to next week’s GDP reading.  Here’s some commentary on the expected upward revision, which is obviously going to put recent recession talk to bed (once again).  I’m maintaining my long standing stance that there will be no recession in the USA in 2012 and it remains unlikely in the first few quarters of 2013:

Via Nasdaq and TD Securities:

Market expectations of a pretty substantial upward revision in the US Q3 GDP, from a preliminary estimate of 2.0% Q/Q annualized to a second reading of 2.8%, will “put the US on considerably stronger footing heading into the peak fiscal cliff uncertainty”, wrote TD Securities analysts, as they observed equity markets rebounding this past week after the post-US losses. Reports about today’s Black Friday should also garner attention as investors look for “signs of how consumer spending is holding up post-election”, they added.

Via Calculated Risk and Nomura:

Next Thursday, the BEA will release the second estimate of Q3 GDP. The consensus is GDP will be revised up to 2.8% annualized growth, from the advance estimate of 2.0%.  This would be a pretty sharp upward revision.

As an example, from Nomura analysts today:

“We believe real GDP growth will be revised significantly upward to an annualized pace of 3.0% versus the originally reported 2.0%, supported by greater inventory building and better net trade statistics than previously estimated.”

Via Bloomberg, Goldman Sachs and Barclays:

“The economy’s momentum has picked up a bit” as the fundamentals of the private sector “are improving,” said Jan Hatzius, chief economist at Goldman Sachs in New York. He projects third-quarter expansion will be revised up to 2.8 percent, and the fourth quarter may come in at 1.7 percent.

According to Dean Maki, chief U.S. economist for Barclays:

Maki projects about $200 billion of fiscal tightening; under these circumstances, “solid momentum” entering the final quarter of the year would give the U.S. enough of a cushion to sustain growth.

“It doesn’t make us invulnerable,” he said. “But it’s better than if the economy had already been slowing sharply and then we were hit with these types of events.” His growth forecasts include 2.9 percent for the third quarter and 2.5 percent for the fourth, followed by 1.5 percent in the first three months of 2013 and a pickup to 2 percent for April-June.

 

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. this number is incosistent with almost all of the wide scale coincident economic indicators such as the philly fed ads, the CFNAI and the PMI’s, all showing sub normal growth for the quarter. i’m guessing it will be revised lower in subsequent revisions, probably along with some upward revisions to Q2.

  2. I’d feel better about 2013 if the everyday economy showed more of an upturn. Like U6 being better than it is, and possibly wages showing better development – not just bigcorp profits.

    Not to mention the whole Dem vs Rep stalemate.

    And the direction the Eurozone is headed.

    (But I’m also not disagreeing with Cullen, I don’t think the economy is about to instantly crater in January.)

  3. Interestingly, GDP was revised up significantly in August 2008 as well, before the massive negative revisions. Commentary was overwhelmingly positive as well back then. No one was predicting a recession back then so perhaps I am still somewhat skeptical due to recency bias.

    Quote from the Bloomberg article:

    “…will come largely from a narrower trade deficit and a bigger jump in stockpiles than initially estimated, economists said.”

    The article seems to read more hopeful than factual so we will see. This sounds like an inventory build which could be tough on corporate profits if demand weakens.

    • Additional observation by Doug Short on his review of the NBER data series:

      http://advisorperspectives.com/dshort/updates/ECRI-Weekly-Leading-Index.php
      “As the average of the Big Four charted above illustrates, growth in recent months has essentially flat-lined, and we still face the near-term impact of Sandy on the economy and the impact of how congress deals with the various components of the Fiscal Cliff. At this point in time, I think it is possible that the NBER could eventually date a new recession from some point in the third or fourth quarter of 2012. But I remain of the view that ECRI’s 2011 recession call was painfully premature.”

      This is a notable change in tone for Doug on the data. Clearly something is off in the current captured data series one way or another.

  4. There are more cross-currents in the coincident variables than usual. GDP is directionaless.