GDP Estimates

GDP Estimates – Since we discussed the durable goods report which goes right into GDP, it makes sense to review the latest estimates for Q3. The average of 12 estimates in the GDP rapid recap show growth will be 3.4%. The St. Louis Fed’s Q3 Nowcast fell from 3.69% to 3.64%.

The Atlanta Fed Q3 GDP Nowcast had an odd increase as it went up from 4.3% to 4.6%. It is way above the other forecasts.

New home sales and costs report caused the estimate for real investment growth to increase from -4.5% to -1.1%.

In the last update, I mentioned it would be almost impossible for real residential investment to fall that much while GDP grew above 4%. Now we see what growth would be if real residential investment growth isn’t a disaster.

Improvement in this estimate is probably correct, but the overall estimate is too high as we will see.

The durable goods report that I just discussed caused the real non-residential equipment investment growth estimate to increase from 6.4% to 7.5%. This estimate is likely way too high.

It will come down when the ISM manufacturing PMI comes in at 55 on September 4th. As I mentioned, inventory investment increased, which should help GDP this quarter. Inventories ran low at the end of last quarter.

The estimate for the contribution of inventory investment to GDP growth went from 1.92% to 2.03%.

The headline disappointment in durable goods orders should hurt GDP growth. However, the Atlanta Fed’s model used it to upgrade its estimate. The NY Fed downgraded its estimate based on this report, which I think is correct.

The NY Fed’s Nowcast fell sharply from 2.39% to 1.96%. The durable goods report is responsible for all but 4 basis points of that decline. Just because I agree with this change doesn’t mean I think growth will be below 2%. It all depends on how strong consumer spending growth is.

GDP Estimates and the S&P 500 – New Record Is Reached

The S&P 500 finally hit a new record closing high like I said it would. The S&P 500 was up 0.62% on Friday. This has been a great year as the S&P 500 is already up 7.52%. The Russell 2000 is up 12.38% year to date even though about 25% of the firms in the index don’t make money and 60% have junk-rated debt.