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We’ll get our first read on second quarter GDP at 8:30 AM ET today.Analysts polled by Bloomberg believe that the U.S. economy grew at 1.4 per cent versus 1.9 per cent growth in the first quarter, however there appears to be broad support for a wide variety of estimates.
So far this year, the U.S. has appeared to shake off some of the negative effects of financial strains in Europe and a slowdown in China. However, an unusually warm January and February may have set the stage for a much slower second quarter.
It would appear that this slowdown has played out in the economic data, which has indicated slowing growth of late.
However, the most important piece of the GDP report probably concerns consumer demand, which led growth in late 2011 and early 2012.
Deutsche Bank’s Joe LaVorgna points out that watching final sales to private domestic purchasers could provide a deeper look at domestic demand:
The key metric for us will be final sales to private domestic purchasers, which is a narrower measure of final sales (the latter simply subtracts inventories from GDP). The former excludes inventories as well as government and net exports from its calculation to arrive at a more representative measure of private underlying domestic demand. In Q1, this series grew a decent +3.0% which translated into a slightly slower +2.7% year-over-year rate. For Q2, we expect this series to grow +2.3%, much faster than what final sales are projected to grow (+1.3%). This would actually raise its year-over-year rate to +2.8%. Of course, all of these numbers could change considerably, because three years’ worth of history is susceptible to revision in today’s GDP data due to annual revisions.
It’s also worth noting that the typically bullish LaVorgna has a low-ball estimate for GDP today: a mere 1.0 per cent growth.
Bank of America economist Michelle Meyer pointed out that the release of three years of GDP data revisions could also have an important effect on markets. She told Bloomberg TV earlier this week that estimates from 2009 and 2010 “would likely still be lower, implying an even larger output gap, and, hence more slack in the economy.” This would suggest that the recovery has been even more sluggish than analysts previously believed.
While a worse-than-expected GDP number could suggest that the economy is stalling once again, Goldman Sachs’s Jan Hatzius suggests that a lot of this negativity might be temporary:
Some of the recent weakness is likely due to temporary factors. One such factor is the inventory cycle, which has been a meaningful drag on growth over the past few months. It is easier to see this in the ISM manufacturing survey than in the noisy and heavily revised official data.