Short Note on US Preliminary Q2 GDP Estimate

The US reports its first estimate of Q2 GDP on July 27.  It is likely to be around the same pace as Q2 last year which was 1.3% annualized.  Last year the second quarter began the recovery from the 0.4% pace in Q1 that continued to the 3% pace in Q4 '11.  

However, this year Q2 will show a slowing in the expansion which was estimated at 1.9% in Q1 12.  There has only been a few surveys and weekly initial jobless claims for Q3 and they have not been very promising. The June durable goods orders data also points to the likelihood of some slowing in shipments in Q3. 

The approaching of the so-called fiscal cliff may also have a paralyzing effect on corporate America.    Estimates suggest simply the uncertainty surrounding the outlook for US fiscal policy, which includes the marginal tax rate for capital gain, may shave 0.5% off GDP.   

The Bureau of Economic Analysis will report annual revisions to the GDP time series going back to 2009, when the current recovery began.   There are three sources of revisions: definitional, methodological, and the incorporation of new data.  This year's revisions will likely be driven by new data.  

Some revisions have already been reported.  They include revised data for retail sales, durable goods, construction, trade, manufacturing and some inventory data.  There are plenty of imponderables.  However, Q1 GDP appears likely to be revised higher and could come close to 2.5%.  Yet rather than a favorable sign, such an upward revision will underscore the slowdown that took place in Q2. 

The dollar is not very sensitive to GDP data and this seems likely to be the case tomorrow.  It is too historical and subject to revisions to impact the current drivers.  The disappointing series of US economy data has heightened risks of some Fed response, and this was the case before the recent story in the WSJ, which as we noted, demonstrated a firm grasp of the obvious.

Draghi's comments today, considerably more than Nowotny yesterday, has given rise to some action by the ECB next week as well.   It is this expectation of a policy response by the Fed and ECB next week in the context of market positioning that is the key driver, not US GDP per se.  
Short Note on US Preliminary Q2 GDP Estimate Short Note on US Preliminary Q2 GDP Estimate Reviewed by Marc Chandler on July 26, 2012 Rating: 5
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