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Daily Forex Fundamentals |
Written by Saxo Bank |
Jul 29 10 14:11 GMT
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US GDP Preview: Unchanged Pace but Not Impressive
Tomorrow's US GDP report will show that the economy grew 2.6% quarter-on-quarter annualized aided by consumption growth of 2.6%. But while the numbers are not too shabby relative to the historical trend, given the amount of stimuli and with the economy about the shift down in gears it is certainly not impressive either.
Consumer spending will be the main driver of economic growth in the second quarter as was the case in the first where it contributed 2.1%-points. While shopping bags have certainly not been filled to the brim in the second quarter, it is still an improvement over the first quarter. Government consumption, however, is expected to subtract from overall GDP growth. State and locals are in the midst of a serious funding crisis and it was not until recently that tax receipts started to increase. However, tax revenues are still much below spending and hence the belt needs to be tightened even more. This cost-cutting is spilling over into the labour market where we expect employment at the state and local level to continue to contract.
Inventory changes have been the most important driver of GDP growth since the trough a year ago. In fact, if you subtract the contribution from inventories final sales have only grown 1.4% during the last year. Looking ahead we expect changes to inventories to be less influential as sales have not picked up enough to allow for large-scale restocking. Most of the recent manufacturing data certainly points to a slowdown, which will in turn affect inventories. However, when viewing the second quarter separately, we expect another sizeable contribution from changes to inventories. Investment is also expected to pick up steam. While yesterday's durable goods orders report was poor on the face of it, what matters for GDP is non-defense capital goods shipments. And these were not poor; following annualized growth of 3.2% in 1Q, they increased by 12.5% in 2Q, which should provide a welcome boost to non-residential investment.
The trade balance is beginning to look more and more like its former self as it continues downward. The deficit is now -$42bn. The global recovery has led to a surge in foreign trade and both imports and exports have risen markedly in the US since mid-2009. Imports have outgrown exports, which explain the increasing trade deficit. This will impact GDP negatively.
We expect the GDP report to show that the economy in the second quarter performed very similarly to the first quarter and we forecast a growth rate of 2.6% on an annual basis. We are more concerned about the second half of 2010 where we expect much lower growth in the US.
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