Q3 Advance GDP - Preview
Q3 advance GDP is likely to come in below the 3.8% achieved in Q2;, the question being how much lower?
The consumption input for Q3 GDP is not likely to impress; both durables and non-durables are expected to show a Q3 drop. And services, though expected to be positive, are not likely to cancel out the drop in durables and non-durables. Q3 GDP should leave no doubt of the credit crunch’s effect on consumption.
Continued housing weakness is likely to cause a drag on the investment portion of GDP. As well, investment in other sectors is likely to be restrained due to the credit crunch, which leads to further Q3 GDP deterioration.
Net exports will actually be a positive addition to Q3 GDP, thanks to a weak USD. The US still runs a trade deficit; however, this deficit will be less than in Q2. Government spending will also help Q3 GDP with a reduction in deficit spending. However, these positive developments are not significant enough to turn Q3 GDP positive.
Upside Surprise:
Even if Q3 GDP has surprises to the upside it is still likely to reduce the 3.8% annualized growth rate projected. A surprise to the upside is not likely to impress markets, however, may help prevent consecutive quarters of negative GDP, which of course means recession.
Downside surprise:
A downward surprise to Q3 GDP is less likely considering expectations for a poor reading. However, surprises are always on the table and a much worse than expected reading will open the door for 50bps speculation.
Wednesday should bring forth an interesting juxtaposition between rate expectations and economic expectations. Will bad news mean good news for markets? Or will bad news mean bad news for markets as it should?