Tomorrow the BEA releases its “advance” estimate for second quarter GDP. It is the first of three estimates. Numbers are subject to revision for years, even a decade or more. Here is a complied list of guesses.

  • GDPNow 1.8%: July 28 GDPNow Forecast Sinks to 1.8% Following Advance Economic Indicators Reports
  • FRBNY Nowcast 2.2%: July 15 GDPNow and Nowcast Forecasts Tick Up 0.1 Percent; Diving Into Interesting Details. The NY Fed had a blackout due to the FOMC meeting. It normally reports on Friday so its report is stale. I am confident its report would have been lower today had it made an update.
  • Goldman Sachs 2.4%: Zerohedge tweeted earlier to day that Goldman lowered its forecast today from 2.6% to 2.4%.
  • Bloomberg Econoday Survey 2.6%: The Bloomberg Econoday consensus estimate is 2.6% in a range of 2.2% to 3.4%.
  • Wall Street Journal Survey 2.6%: July 28 – Gross domestic product, a broad measure of economic output, is projected to have advanced at a 2.6% annualized pace this spring, according to economists surveyed by The Wall Street Journal. The economy grew at 1.1% in the first three months of the year.
  • Markit Chief Economist 1.0%: July 6 is the latest I could find from Markit chief economist Chris Williamson as noted in PMI Services Essentially Flat, Non-Manufacturing ISM Jumps Huge
  • ZeroHedge 2%: I emailed ZeroHedge this morning to see if he had a guess. He does. It’s 2%.
  • Mish: My thoughts and explanations below. First consider “Five Things to Watch”.

Five Things to Watch

The Wall Street Journal notes Things to Watch in the Second-Quarter GDP Report

  1. Above-Trend Growth: Mish comment – The Journal’s estimate of above-trend growth is based on its consensus estimate of 2.6%
  2. Revisions: Mish comment – This year should be a doozy. I expect GDP for 2014 to go up and 2015 to go down. The BEA is revising GDP for a decade following a data error
  3. Trade Challenges: Mish comment – The strong dollar has hurt US exports. Brexit will not be a factor this quarter, if ever.
  4. Consumer Catalyst: Mish comment – The Journal says “Recent retail-sales numbers and personal-consumption data point to relatively healthy consumer spending April through June. Those gains will likely need materialize in the GDP report to support overall economic growth near a 3% rate.” Mish says 3% is Fantasyland material.
  5. Inventory Adjustment: Mish comment – The Journal says “The change in private inventories tends to be a wild card in GDP reports. An advance look at inventories, released for the first time Thursday, is intended to remove some of that guesswork.”

Political Calculations on GDP Revisions

I received a ping from Ironman at Political Calculations this morning. He updated his post An Unexpected Sneak Peek of a Massive Downward GDP Revision for the U.S.?

Ironman expects something like this.

Ironman GDP Revision Estimate

I am uncertain if that includes the massive backward revision due to a construction spending data error as noted in Diving Into the Revisions: Construction Spending Revised Lower 7 Consecutive Months! 2015 GDP Will Decline vs. Estimates: By How Much?

For construction spending in isolation I am confident GDP would go up in 2014 and down in 2015. The chart from Ironman implies otherwise.

I did not estimate 2014 but I did estimate “third quarter 2015 GDP will be revised about .57 percentage points lower, second quarter .56 percentage points lower, and first quarter .21 percentage points higher.”

Methodology Revisions

In addition to those revisions, the BEA revised its methodology to raise fourth and first quarter GDP at the expense of second and third quarter GDP.

Fearful Forecast

Taking everything above into consideration, my fearful forecast is the lowest in the group. I estimate second quarter GDP to be +0.8%.

Addendum

Saxo Bank chief economist and CIO Steen Jakobsen pinged me late Thursday with his forecast: 1.6%.

That makes three of us willing to bet under 2%. I am the lone brave soul under 1%.

Mike “Mish” Shedlock