US: GDP Forecasts Rise on Back of Q2 Upgrade

Consensus Forecasts

A small uptick in the 2013 and 2014 GDP outlook has accompanied the second release of the Q2 national accounts. The report showed an upside revision to the initial GDP outturn of 1.7% (q-o-q annualized) growth to 2.5%, more than double the first quarter’s 1.1% pace. Activity was supported in part by an 8.6% annualized surge in real exports, up from a 1.3% decline in Q1, which helped to ease some concerns about slowing external conditions. Corporate profits soared by a massive +16.4% in stark contrast to the 5.1% contraction recorded in the March quarter, in turn giving impetus to our panel’s forecasts for the variable. The Q2 contribution to GDP from inventories was larger than initially announced, although going forward, this could suggest that firms – having built up sufficient stockpiles – will now start to wind them down. Consumer activity is also looking subdued: after easing from an 2.3% (q-o-q annualized) advance in Q1 to 1.9% in Q2, monthly real personal consumption was flat m-o-m in July following a 0.2% rise in June. Elsewhere, July was a muted month for retail sales which slowed from 0.6% (m-o-m) in June to 0.2%. The outlook for consumption is not completely downbeat, however. August non-farm business payrolls hit 169,000, although strong gains in payrolls recorded in previous months were sharply revised down. Still, speculation that the Fed could taper quantitative easing at its September 17-18 meeting remains rife.

After flat industrial production in July, August’s ISM manufacturing survey was robust. Even July’s widening trade deficit – due to a US$12.5bn surge in auto imports – derived from US-owned plants in Canada and Mexico. Regardless, this has not stopped production expectations from faltering this month.

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