Get ready for the GDP hot takes
S E E D E D C O N T E N T
Let’s talk soybeans
Get ready for the hot takes.
When the Commerce Department releases second-quarter GDP data on Friday at 8:30 a.m. Eastern time, economists will be expecting a whale of a number. The MarketWatch-compiled economist consensus calls for 4.3% growth, which would represent the fastest growth rate since the 5.2% gain put on the scoreboard for the third quarter of 2014.
If second-quarter GDP growth tops 5.2% — not at all impossible, given the data that’ve come in — it would be the strongest number since the third quarter of 2003.
Of course, that was an era when the president of the United States did not take to Twitter to brag about economic data. Already, reporters and economists seem to be jockeying to frame the report:
So whether you’re bracing for or eagerly awaiting the report, here are some factors to consider:
Yes, some artificial strength can result from a trade war. Boats raced, literally, to ship soybeans to China ahead of the 25% tariff the Chinese government said it would impose on key U.S. agricultural products. (Bloomberg has chronicled the story of one that didn’t make it in time .)
Exports, a drag on first-quarter growth, will provide what may be the biggest quarterly contribution in nine years. Morgan Stanley points out that soybean exports are up almost 9,400% on an annualized basis over the past three months. That’s not going to last.
There also will be a trade-war “boost” to inventories, in categories such as machinery, as a result of deadline racing. And some of that inventory boost is the really bad kind: unsold stockpiles.
Morgan Stanley says net trade and inventories will boost GDP by 2.2 percentage points to the 4.7% growth level that the investment bank expects.
All that said, consumption should be pretty good. The Atlanta Fed’s “nowcast” model calls for the American consumer to account for about half the economic growth, a welcome boost from the anemic 0.9% growth in the first quarter.
Over the preceding 10 quarters, U.S. consumption has averaged 2.6% growth, and economists expect the second-quarter figure to be above 2% as well — and possibly above 3%.
“A healthy labor market, rising disposable-income growth as a result of the tax cuts, and elevated consumer confidence collectively support a solid pace of consumption,” said Sam Bullard, a senior economist at Wells Fargo.
An increase in drilling rigs should help boost business investment. And government spending, which is tough to track in any event, may get a boost from the congressional boost to defense outlays.
Housing, by contrast, could be a drag, as new- and existing-home sales falter. High prices, 4%-plus mortgage rates and reduced tax incentives seem to be curbing demand.
Complicating the interpretations will be the once-every-five-years benchmark revisions that will simultaneously be released with the GDP report. Economists have long complained that first-quarter numbers experience something called residual seasonality (don’t ask), and if past growth numbers get upwardly revised then the base could be higher. That could make it look like there’s a “miss,” to use Wall Street parlance, when economic activity is just as good or even better than advertised.
So, get ready for a round of “yes, buts” and finger pointing, alongside some, “Won’t you ever give Trump at least some credit?”
The economy seems to be both benefiting (tax cuts, confidence) and hurting (trade) from White House policies.
The haters will be right. As will the haters of the haters. And, as always, we’ll need more data to confirm or disprove the hot number that is likely to arrive.
Related: GDP seen ballooning above 4%, but air might be already leaking out of economy
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The economy hit the gas pedal in the spring and may have ripped off one of the fastest growth spurts since the U.S. exited the Great Recession nine years ago. Great news, all right, but it won’t mean much without a few encores.
Gross domestic product — the official yardstick for the economy — likely grew 4% in the second quarter, economists polled by MarketWatch say. Such an increase would double up on the 2% gain in the first three months of 2018.
The spring bloom could be even brighter. The Atlanta Federal Reserve’s GDPNow forecast pegs growth at 4.5% and some Wall Street firms such as Macroeconomic Advisers estimate 5% GDP.
“After taking a brief pit-stop at the start of the year, the economy is firing on all cylinders again,” said economists Michael Gregory and Sal Guatieri of BMO Capital Markets.
No kidding. Consumers boosted spending, hiring surged again and businesses lifted investment and production. Exploding growth has sparked growing shortages of skilled labor and even some raw materials, a problem exacerbated by recent tariffs on foreign steel and lumber.
Now let’s be clear. No one should ever take one quarter’s worth of evidence to make a long-term prognosis on the economy’s health. Onetime events could giveth to GDP in one period and taketh from another.
The better way to look at the economy is over a broad span. If second-quarter GDP meets forecasts, the U.S. would have expanded at a 3% rate or higher in the first half of 2018. And it would put the economy on track to achieve 3% GDP for the full year.
How big a deal is that? Well, the last time the U.S. grew 3% in a calendar year was 2005. The past 12 years mark the longest stretch in the nation’s history in which GDP has failed to break the 3% mark.
These just aren’t abstract numbers, either. A faster growing economy means lower unemployment, rising wages and bigger profits. In short, people can more easily make ends meet and achieve a higher standard of living.
Slow growth has been a problem in the U.S. for a decade now and it’s far from clear that a broader upswing is coming. The pro-business Trump administration has tried to get the economy on a faster plane with big tax cuts and deregulation, but it’s also causing lots of anxiety with brewing trade spats.
And now the president has complained publicly about the Federal Reserve raising interest rates, breaking another Washington taboo. For decades the White House has refrained from overt actions that could appear to threaten the independent of the central bank.
Such an increase would double up on the 2% gain in the first three months of 2018.
The growth was 2% for the first quarter. Where is the greatness in that?
I just heard on a news program that the 'negotiations' with the EU over trade that trump announced yesterday already existed under the Obama presidency. Trump blew up the negotiations earlier, then "reinstated" them yesterday, and then takes credit for solving a problem that he himself created.
Where is your proof on the negotiations that Obama started? Include details on the scope of what they would cover as well.
Where Obama is concerned the EU and NATO walked all over him; just like they did Bush.
John Harwood of CNBC said it on a show this morning. Make your inquiries to him.