The Bureau of Economic Analysis revises its estimate of the prior quarter’s gross domestic product on a monthly basis. The most recent estimate shows second quarter GDP expanded by 2.3%, just below Bloomberg-compiled expectations. The market is discouraged not by the most recent GDP estimate, but by the BEA’s revision for estimates all the way back to 2012. What the BEA previously reported as 2.2% annual growth has been revised down to 2.0%. The annual revisions to all national account statistics resulted from newly available source data, updated seasonal adjustment and changes to underlying methodologies. However, economists at Goldman Sachs say the changes “did little to address the residual seasonality that seems to artificially depress Q1 growth estimates.” The market was hoping first quarter GDP statistics would be revised upward to reflect better seasonal smoothing techniques (and indeed first quarter 2015 GDP was revised up to 0.6% from minus 0.2%), but prior years’ first quarter readings did not budge much. “Estimated seasonal bias looks about the same,” Goldman summarized. This means the probably already-forgotten “Polar Vortex,” as the harsh weather in the first quarter of 2014 was called, and similar seasonal factors going forward, will still drag down full year readings until the BEA takes further action to resolve the volatility. Lower GDP readings are in line with SNWAM’s view that the United States is mired in either a period of growth stagnation, or a wider structural decline in demand. Both are troubling. Our client portfolios reflect a higher probability that things continue to muddle along, and the GDP revisions support our thesis.
Sources: BEA, GS, Lombard Research, Bloomberg, SNWAM Research