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原标题:US Economic Notes:Q3GDP may be a washout but Q4should shine

浏览次数:73 时间:2019-10-02

Commentary for Thursday: As we noted about three weeks ago, HurricaneHarvey will impact several key economic data series over the next couple ofmonths (see: Potential impacts of Hurricane Harvey on US economic data).Unfortunately, since we published that report, Hurricane Irma has batteredsouthern Florida and at present Hurricane Maria is wreaking havoc in theCaribbean. As a result, we are downgrading our Q3real GDP growth forecast from2.9% to 2.0%. However, most of the lost output in the current quarter should bemade up in Q4and we now expect growth of 3.1% compared to 2.4% previously.Q42017/ Q42016real GDP growth remains unchanged at 2.4%.

    To be sure, in the absence of inflation pressures, continued labor marketperformance becomes all the more important if the Fed is to continue alongits “gradual” tightening path. Unfortunately, assessing near-term labor marketdevelopments will be difficult, as the September employment data will likely beseverely impacted by Hurricane Harvey and potentially Hurricane Irma (seeUS Economic Notes: “Will Harvey wreak havoc on the September employmentdata?”). The surge in claims last week was the first evidence of this and they willlikely rise further this week. While claims should eventually reverse in the monthor two ahead, the disruptions will undoubtedly muddy the employment picturenear term. Ultimately, near-term volatility in employment data should not alter the Fed's central view that the labor market is at full employment with solidmomentum.

    Residential investment may be less impacted by the storms as we anticipatea -3.0% decline due to the weakness in construction and existing home sales.

    With respect to the components of GDP, we have lowered current-quarter realPCE growth to 2.0% (vs. 2.6% previously). This is consistent with the latest retailsales data, which were soft even if allowing for some possible impact due to theweather disruptions. For example, while the drop in auto sales last month couldpartly be chalked up to delayed purchases in the Hurricane-impacted regions,retail control, which excludes autos, building materials and gasoline stations, wasalso weak. Recall that retail control is a key input into goods spending in the GDPaccounts. Through the first two months of the quarter, retail control is up just 1.3%annualized, the weakest since Q32016. Indeed, the downward revision to the Julycontrol figure pointed to modestly less momentum in consumer spending growththan previously anticipated. That said, we anticipate inflation-adjusted consumerspending growth to rebound in Q4, rising 2.7% (vs. 2.4% previously).

    We anticipate similar gains for headline (+0.3% vs. +0.1%) and core (+0.2% vs.

    Regarding the other components of Q3 output, we expect real PCE growth of2.0% (versus 3.3% in Q2). Some of this downshift reflects expected weaknessin services spending, in particular electric utilities. Recall that in Q2, electricityexpenditures surged 24% annualized, the third largest gain in the postrecessionperiod. Hence, we should see some payback from this category,which may be exacerbated by the wide-spread outages in the wake of thehurricanes. In addition, retail control, which is an excellent proxy for goodsspending in the GDP accounts, points to a moderate deceleration in Q3 PCE goodsexpenditures following a relatively robust 5.4% gain in Q2.

Commentary for Monday: This week’s economic data docket will provide newinformation on inflation and consumer spending. Market participants will likelyfocus on the August PPI (Wednesday) and CPI (Thursday) reports given therecent inflation soft patch. Regarding the former, headline PPI (+0.3% forecastvs. -0.1% previously) will likely get a boost from gasoline, while core producerprices (+0.2% vs. -0.1%) should rise more modestly. As always we will pay closeattention to the health care industries component within the PPI as this is usedto estimate health care services in the core PCE deflator – the Fed’s preferredinflation metric. Recall that health care has the largest weighting within the corePCE deflator.

    However, this comes on the back of an unusually large -7.3% decline in Q2. In fact,the Q2 decline in residential investment was the largest since Q3 2010 (-30.7%).

    Other data on Friday include the September New York Fed Empire Survey(15.0 vs. 25.2), August industrial production (-0.2% vs. +0.2%) and Julybusiness inventories (+0.3% vs. +0.5%). While the Empire survey may moderatesomewhat, it should nonetheless remain firmly in expansion territory. Industrialproduction may slip given declines in manufacturing hours and electricityoutput. However, as we noted previously (see US Economic Notes “PotentialImpacts of Hurricane Harvey on US economic data”), the September industrialproduction data are also likely to be impacted by storm-related disruptions– particularly chemical and energy-related production. Business inventories(+0.3% vs. +0.5%) are rarely a market-moving event but will provide a preliminaryread on current quarter stocking. -Ryan & Luzzetti

    However, this is one of the most volatile components of GDP and the auto sectorcan at times have an outsized influence. Note that motor vehicle assemblies havedeclined for the last four consecutive quarters and were down -27% annualizedin Q3—the largest quarterly decline since the last recession. Given the modestrebound in unit motor vehicle sales in Q3, there may have been some furtherdestocking in the sector last quarter.

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