US GDP due out at 8:30 AM. A decline to +2.8% Annualized is expected.

At 8:30 AM the US GDP for the 3rd quarter will be released. This is the second cut of the number, with the first estimate coming in at +3.5%.    That estimate was based on uncomplete data. This release will include such things as the Trade Balance data for September which was released on November 13th and showed a larger deficit. A larger deficit is a negative for GDP.  As a result, Net Exports will help contribute to a decline in the first estimate. 

The expectation is for a decline to a gain of +2.8% from the original estimate of 3.5%. In addition to a negative effect from trade, Personal Consumption data - the largest component of GDP -  is also expected to be revised lower to + 3.2% from +3.4% on an annualized basis.  The GDP Price Index is expected to show a gain of 0.8% which is unchanged from the initial report.  Finally the Core PCE QoQ is expected to show a rise of 1.4% also unchanged from the prior release. 

The release can be quite volatile as it will also include pieces for government and investment (i.e.  business investment, residential purchases, inventories go in this component piece).  It also includes inventories which in the first release contributed 0.94% to the GDP.

Of the pieces which make up the 3.5% GDP, Personal Consumption contributed the most on an annualized basis. Below is breakdown on how much each component contributed to the 3.5% annualized GDP figure:

Personal Consumption: +2.36% (67%)
Gross Private Domestic Investment +1.22% (34%)
Net Exports -0.53% (-15%)
Governmant Consumption +0.48% (14%)

The US GDP is presented on a Annualized Basis.  That is it takes the quarter on quarter change and annualizes that change.  So it tends to have more of an impact in the newspaper headlines.  That is, the 1st and 2nd quarters can show a decline but the 3rd quarter rebounds and the release shows a growth rate of 3.5% on the nightly news.  The true GDP growth for the year of 2009 is of course less once you factor in the declines in the 1st and 2nd quarter and annualize that value.    

Most other country GDP releases are presented on a quarter on quarter change basis.   The Eurozone GDP estimate for example showed a gain of +0.4% for the quarter.

US GDP to be released at 8:30. Regional US PMI data out later this morning

The US GDP for the 2nd quarter will be released at 8:30 AM.  Last quarter GDP fell by -5.5%  on a quarterly basis annualized.  This was better than the previous quarter when the annualized loss came in at -6.5%.   This quarter the 1st release- which includes some estimated data -is espected to improve smartly to show a -1.5% annualized decline.  The stimulus package, better net trade should contribute.  Inventories are likely to have declined again as auto manufacturers cut production and reduced stockpiles due to slow demand, but this may bode well for future growth as stockpiles are replenished.   The Cash for Clunkers incentive program for the auto industry is expected to boost sales of autos as well going forward.  A decline in GDP will be the 4th decline in a row which is a record going back to 1947.

On the consumption side, the consumer is expected to remain on the sidelines.  The consumer is expected to have slowed purchases by -0.5% versus a +1.4% gain in the 1st quarter. The consumer is still plagued by high umemployment and an increasing savings rate.    The GDP Price Index is expected to show a slower 1.0% gain versus 2.8% in Q1.

The Core PCE for the quarter is expected to show a gain of 2.3% versus a gain of 1.6% last quarter.  This will also be released at 8:30 AM.

Also released at 8:30 will be the Employment Cost index for the current quarter.  The expectation is for a small gain of 0.3% - the same as Q1. Employees have little power in demanding higher wages of course.

Finally at 9:45 and 10AM, the Chicgo PMI and Milwaukee PMI will be released. The Chicago PMI is expected to rise to 43.0 from 39.9 last month.  This would be the  2nd increase in a row and the highest level since September 2008.  The Milwaukee PMI is expected to show a gain to 52 vs 50 last month.   This would be its 5th straight increase and the highest level since December 2007.

US GDP weaker than expectations but higher than Flash estimate

The expectations was for a decline of -5.5%.  It came in at -5.7% an a Q/Q annualized basis. This is the 3rd straight decline in US GDP but it is up from the -6.3% decline reported in the 4th quarter of 2008.. 

• Consumption fell from +2.2% to +1.5%. (contributed 1.08% vs +1.5% in last estimate)
• Private investment fell by -49..3 vs -51.8% previously reported (contributed -8.27% vs -8.83% in last estimate)
• Governement fel by -3.5% vs -3.9% earlier reported (+2.18% vs +1.99% in last estimate). 
• Finally, Exports fell by a -28.7 vs -30% while imports decline remained unchanged at -34.1 contributed -0.71% vs -0.81% in last estimate).

GDP worse, but consumption better. A lot of “buts” in the number.

GDP down 6.1%, Consumption up 2.2% Q/Q on an annualized basis..

Government Spending fell 3.9%.  This contributed to a -0.81% decline in the current GDP number

Inventories accounted for a -2.79% of the decline while Net Trader added 1.99%. Consumption added 1.5% this quarter after a -2.99% and -2.75 decline in the previous 2 months.  Gross Private Domestic Investment contributed to a -8.83% decline of the GDP.  Within that sector Non Residential Structures declined 2.13% (not likely to rebound). The Equiptment and software contributed to a 2.55% decline (more likely to rebound) and Residential contributed to a 1.36% (not likely to rebound with supply of homes so high).

The 3rd decline in a row was the 1st time since 1975.

The mix in the numbers is what makes traders look at the future.  If inventories are  now in control, a decline next quarter will not occur.  Investement is a big minus for the GDP this quarter.    Within that component there is Residential and Non-Residential construction. With commercial real estate in the doldrums and the Residential supply still high, any rebound is unlikely going forward.  Businesses can increase investment in equipment, however, with a more steady economy.   Government is also a future contributor to GDP.  It is unlikely that this component will be a decline in the near future. 

Consumption which accounts for up to 70% of GDP is the wild card of course (and most important).  Will unemployment stop its move higher?  The weekly  initial claims are not showing it?  Will housing recover in the spring and spur on more trickle down spending?  The mortgage application data today suggests a healthy real estate climate seems more a hope than reality (so far).   These are the two most important problems facing the economy going forward and will need to rebound in order to truly rebound.  If they don’t, the green shoots may wither away.   Watch the weekly data in the spring.

US 1st quarter GDP due out at 8:30 AM

The US 1st quarter GDP will be released at 8:30 AM.  The expectation is for a decline of 4.7% annualized  for the quarter.  Last quarter the annualized decline came in at -6.3%.  This was the lowest level since the 1Q 1982.

The Consumption is expected to improve by 0.9% after two months of sharp declines.  GDP Price Index is expected to rise by 1.8%  for the quarter.

4th quarter GDP is due at 8:30 AM

The US GDP for the 4th quarter will be released at 8:30 AM  This is the Preliminary release for the data.  There has been a first cut release already. That came in at -3.8% with Consumption down 3.5%.   The estimate is for a GDP to show a much larger decline of 5.4% on an annuualized basis.  Consumption is expecteed to decline by 3.7%.  The revisions from the 1st cut are as a result of reduced inventories and worse inflation adjusted trade deficits.  

A decline of 5.4% will be the worst reading since the 1st quarter of 1982 when GDP fell by 6.4%.  More and more of the data is making the current downturn comparable to the 1980 to 1982 recessionary period.  During that time period there was an initial back to back decline in GDP but it was followed by two quarters of >7.6% growth.  Later in Dec 81 and Mar 82, the back to back declines had a more modest bounce back (in fact the middle quarter had a 1.5% decline).  After that, the growth surged to 7% to 9% growth. 

This decline, has economists talking of the possibility of a 10% decline in GDP for the 1st quarter.   Moreover, the employment situation is looking more bleak as well.  Will we see the post recession surge like in 1983?  We will most likely need to wait a year or so.  Stay tuned….