The Q2 2019 advance GDP report is coming up
Calculating GDP is difficult at the best of ties but when it's done with an incomplete data, it's subject to even more uncertainty.
The US advance GDP report is no better than a guesstimate and yet it's a major market mover. Even moreso on Friday as it's one of the final top-tier releases ahead of the FOMC decision on Wednesday (PCE, consumer confidence and ADP employment are also to come).
On Thursday, the Atlanta Fed released its latest tracking estimate for Q2 growth and it was lowered to 1.3% from 1.6% in part due to a surprisingly large US goods trade deficit in June.
Economists are a bit more optimistic with the consensus at 1.8% q/q annualized. Still, there is plenty of variance with JPMorgan at 1.0% on the low end and UBS with the high estimate at 2.6%.
If the reading hits the 1.8% consensus (and isn't revised), it would match the weakest quarter since Q3 2016.
Economists at IHS note that tracking forecasts and PMI are sending different signals.
"The first official GDP estimate for the second quarter of 2019 is hotly anticipated amid widespread indications that growth has slowed sharply from the first quarter. Consensus currently expects an annualised expansion of 1.9%, further extending one of the longest periods of growth on record, despite the upturn slowing. IHS Markit's US economists' GDP tracker forecasts 2.1% growth, while our PMI data point to a 1.5% annualised expansion."
As for the details, a trade drad isn't necessarily bad nor is an inventory drawdown, as RBC highlights:
"The composition of the report is likely to reveal strong consumer spending growth, with most of the weakness confined to external or artificial categories. Net exports are set to subtract 0.5 percentage points from growth. This is undeniably a reflection of protectionism, but it simultaneously means that U.S. domestic demand is likely better than the GDP number will suggest. The same goes for inventories, which are expected to subtract a big 1.0 percentage point from the growth figure. This inventory drawdown means that producers did temporarily expand their output by less than normal, but that demand growth was notably better than the GDP number itself."
Note that Thursday's trade numbers mean the drag will be even longer, and could cut as much as 1 full point from Q2. The market will be watching the details closely.
