Friday, July 19, 2013

Two more Q2 GDP Downgrades

by Bill McBride on 7/19/2013 07:42:00 PM

From Reuters: Morgan Stanley cuts second quarter U.S. GDP forecast to 0.3 percent

Morgan Stanley economist Ted Wieseman, but the softness in June nonetheless prompted him to cut Morgan Stanley’s Q2 GDP estimate to 0.3 percent from 0.4 percent.
From Merrill Lynch:
This week we are marking to market both our growth and inflation forecasts. On the growth side, the story is simple. With most of the data in, our tracking model pegs 2Q GDP growth at just 0.9%. ... Clearly, the fiscal shock and weak global growth are undercutting the recovery. The main reasons for the downward revision in 2Q are weaker inventory accumulation and a wider trade deficit.

This weakness is not a fluke: it reflects weakness in many key growth indicators. ...

That said, the good news is that we don’t think the weakness will be persistent. The consumer looks healthier heading into 2H, and manufacturing is starting to improve thanks to autos. Low inventories in 2Q give capacity to rebuild in 3Q. Thus, we are revising up 3Q GDP growth to 2.0% from 1.5%, and continue to expect 2.5% in 4Q. We are not out of the woods yet, but conditions are improving.
And Mark Zandi of Moody's Analytics last week:
The thing that changed is the GDP number.... That is really coming in much weaker than anyone had expected. Certainly than I had expected earlier in the year. It's tracking slightly positive and it's possible that it could be a negative print in Q2.
This slowdown is probably related to the significant drag from fiscal policy. I expect the fiscal policy drag to diminish and growth to improve going forward.