GDP Preview – Will It Beat Expectations?
May 26, 2010 8:52 pm
Tomorrow morning we will get a chance to see how the U.S. GDP is progressing. Overall, we have estimates ranging from 3.0% to approximately 4.1% – QoQ annualized. The ugly truth is that we should be seeing GDP approaching 5% to 7% coming out of such a deep recession. Below are some of the estimates of the top economists. A few increased theirs to 3.7% from 3.2%, just today – following the update by Goldman Sachs (GS).
Previously we have been light on government spending and this could be the surprise number in the revised report as spending should have been increasing via the massive stimulus package. Yet, spending has been slow to show up. We know this as we hear from the CEO of Nucor (NUE) that they have not seen any major buying for steel related to infrastructure projects sponsored by the stimulus. Obviously many are asking how that possible.
What we are looking for beyond the headline number will be the PCE – Personal Consumption Expenditures – as an indication of how the consumer is holding up their spending patterns. As this has made up 70% of the economy of the past (assuming that the “New Normal” has not totally taken over) it is vital for a sustained recovery.
Economic Data Previews: GDP – Second Estimate
According to the latest consensus estimate, the second estimate for Q1 2010 GDP is expected to increase from 3.2% to 3.3%.
Typically, the second estimate shows wide differences from the advance estimate while the third estimate posts almost no change.
After going through all of March’s data that were released in April, we believe GDP will increase to 3.4% but growth above this level is definitely plausible.
The consensus estimate was not changed following the latest advance durable orders report. The report revealed a significant positive revision to March’s shipments in nondefense capital goods excluding aircraft. This should lead to higher growth in nonresidential investment equipment and software than the consensus estimate predicts.
Most of the known differences between the consensus estimate and the advance GDP estimate were centered in the inventory sector. The latest data from the Census Bureau suggest that the BEA vastly underestimated merchant wholesaler inventory levels. As these levels are revised, the change in inventories should push GDP higher.
The chart BEFORE the report release.
Trend of selected analysts GDP expectations.
(Click Image to Enlarge)