Photo: Flickr Jose and Roxanne
From Deutsche Bank’s Joe LaVorgna:This Friday’s advance Q2 real GDP report on July 29 is a key economic release for a couple of reasons. One, the mix in growth between domestic demand and inventory restocking will provide us with a better sense of how current quarter growth may shape up. For example, stronger domestic demand relative to inventory building tends to be more constructive for future quarters than if inventories are increasing faster than demand, which would be a negative for the outlook. Two, the Q2 advance GDP report will also contain annual revisions that will date back to 2003. Therefore, the historical performance of the economy could differ a bit from what we currently know about prior period growth rates. In turn, this could potentially influence economists’ estimates of output going forward and as the chart below indicates, it is not unusual for revisions to be quite large.
In point of fact, since 2003 the average revision to real GDP growth from the advance release to the latest value has been -0.4%. However, the absolute average revision has been 1.0% and the standard deviation on the revision has been a sizeable 1.2%. Therefore, depending on the mix in Q2 output and the possibility of large revisions, the trajectory for second half growth could look different than what we currently envision. However, there is very little hard data available yet for the current quarter. Therefore, we will not fine tune our estimates for the remainder of the year until we see both the GDP data as well as the July employment report on August 5.