Thursday, July 25, 2013

Friday: Consumer Sentiment

by Bill McBride on 7/25/2013 09:02:00 PM

Next week the BEA will release comprehensive revisions to GDP for prior years. From Merrill Lynch on the GDP revisions next week:

The release of 2Q GDP on July 31 will be anything but a typical report. The Bureau of Economic Analysis (BEA) will be announcing the results of its comprehensive benchmark revision which we believe will reveal significant adjustments to GDP, personal income, the savings rate and corporate profits. Here are the main takeaways ...

• The level of GDP will be revised higher over the history of the sample, likely in the order of 3.0pp. We believe the revision will be pro-cyclical and therefore make the recessions look modestly deeper and the recoveries appear stronger. In particular, already-released revisions to source data imply an upward revision to 2012.

• Personal income will also be revised higher. However, it will likely be adjusted to be less volatile, likely smoothing the most recent business cycles.

• The saving rate will be revised higher, likely in the order of 2 to 3pp. This could boost the current rate from 3.2% to as high as 6%. We think the revision will be notable over the past cycle, showing greater precautionary saving in response to the financial crisis. The revisions will make the data more comparable to the Flow of Funds (FOF) accounts and help to align the savings rate measured by the FOF and NIPA.

• An upward revision to GDP growth will bring the trend in GDP more in line with the recovery in jobs. It therefore implies an upward revision to the level of productivity, but in particular we look for an upward revision to productivity growth in 2012.

• Corporate profits are likely to be little changed (with a risk of a small downward revision), but the revised series should be less volatile.

• The PCE deflator will be subject to revisions as well, but we have little information regarding the direction or the magnitude. In past benchmarks, the revisions to the deflator have been marginal.

Overall, the revisions will reveal a stronger household sector, which is wealthier and thriftier than previously believed. It will also show that the economy fared better over the past year than was initially reported, implying greater momentum heading into this year.
• At 9:55 AM ET, the Reuter's/University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 84.0, up from the preliminary reading of 83.9, but down from the June reading of 84.1.