The weekend is over and stocks are falling.
U.S. futures were down nearly 0.2%, as was Japan’s Nikkei and New Zealand’s 50 Gross index.
This is a major week in U.S. economic data, as we’ll get both the latest GDP reading and celebrate Jobs Day Friday. High Frequency Economics chief U.S. economist Jim O’Sullivan is feeling ok about what we’ll learn this week:
We have been writing about a “tale of two recoveries,” referring to significant labour market improvement even as GDP has disappointed. That theme was evident through the end of 2013, but the divergence widened dramatically — implausibly — with the -2.9% Q1 GDP reading. In contrast to GDP, labour market indicators have continued to strengthen so far in 2014. We expect at least some catch-up in GDP in this week’s report for Q2: We project a 3.5% growth rate.
A 3.5% pace for Q2 could be spun as strong or weak. On the plus side, it would be more than a point higher than the recovery-to-date average. Growth averaged just 2.4% at an annual rate in the first 18 quarters of the recovery — through Q4 of 2013. The average drops to 2.1% if Q1 is included. Conversely, it implies barely positive growth in the last two quarters combined. We do not believe the two-quarter average is a fair representation of the trend — although we also agree that there should be at least some payback for weather effects — and the reading for Q2 alone will not necessarily be indicative of the underlying trend, either. Meanwhile, the ISM indexes have been moving up; they already look high enough for a 3%+ trend in growth.