Wednesday, July 29, 2015

Thursday: Q2 GDP and Revisions, Unemployment Claims

by Bill McBride on 7/29/2015 08:01:00 PM

The GDP revisions will be especially important this year.

Excerpts from a research piece by Michelle Meyer at Merrill Lynch:

The moment of truth
• The annual revision to GDP growth on July 30th will adjust estimates of growth over the past few years. If growth is indeed revised higher it would help solve the puzzle of low productivity growth.

• This will also be the first release of the new GDP and GDI composite. This will show a stronger trend of growth given that GDI has outpaced GDP recently.

• Taking a step back and examining a range of indicators reveals an economy expanding at a mid-2% pace, largely consistent with the Fed’s forecasts.
On July 30th, along with the first release of 2Q GDP, the Bureau of Economic Analysis (BEA) will release the 2015 annual NIPA revision. We will be looking for the following:

1. Will GDP growth be revised higher over the past few years? If so, this would imply faster productivity growth, which has been puzzlingly slow.

2. How will the revision to seasonal factors adjust the “residual seasonality” issue to 1Q GDP growth over the years?

3. Will the new aggregated GDP and GDI figure take the spotlight away from GDP?

Although it is hard to say with any certainty, we believe GDP growth is likely to be revised up modestly. This will likely leave the Fed comfortable arguing that the economy is making progress closing the output gap, allowing a gradual hiking cycle to commence.
And on Q2:
The first estimate of 2Q GDP is likely to show growth of 3.0%, which would be a bounce from the contraction of 0.2% in 1Q. However, it is important to remember that the history will be revised along with this report.
A few excerpts from a research note by economists at Nomura:
Q2 GDP, first estimate (Thursday): Economic activity in Q2 bounced back after slowing in Q1. However, some factors such as low energy prices and the strong dollar likely continued to weigh on business activity. We expect the BEA to report that the rebound in activity was concentrated in the consumer, housing and government sectors. As such we forecast a 2.8% increase in Q2 GDP, with real final sales growing by 3.1% as we expect inventory investment to subtract 0.3pp from GDP growth.

The annual revisions to GDP will also be released. Revisions will be mostly applied to data between 2012 and Q1 2015. The most notable features the annual revisions will introduce are 1) the average of GDP, gross domestic income and final sales, 2) an upgrade to its presentation of exports and imports, and 3) improvements to seasonal adjustment of certain GDP components. Furthermore, our work suggests that there is material residual seasonality in top-line GDP in Q1, as it tends to be below trend due to strong seasonal patterns in defense spending. Therefore, we might see some revision to the distribution of GDP growth in the first part of this year. As such, there is more uncertainty around the Q2 GDP estimate than usual.
• At 8:30 AM ET, Gross Domestic Product, 2nd quarter 2015 (advance estimate); Includes historical revisions. The consensus is that real GDP increased 2.9% annualized in Q2.

• Also at 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 272 thousand from 255 thousand.