This week, our June economic forecast was released which continues to indicate that a slowing economy is in the cards. At the same time 1Q2019 GDP second estimate was released showing GDP grew at a stellar rate of 3.1 % quarter-over-quarter (3.2 % year-over-year).
0.6 % of this 3.1 % growth number is attributable to inventory growth (materials manufactured but not yet sold). Consumer spending was weak. The strength in this report is the trade balance not being a drag on GDP - likely because of the uncertainties of the trade wars/tariffs. Inventory build is usually a result of a slowing economy. It is humorous in a way that GDP accelerates because of inventory growth as an economy slows.
2Q2019 growth should be significantly less.
2Q2019 GDP growth will be affected by a lack of Boeing 737 Max shipments. I have seen estimates of the impact to GDP of -0.2 % to -0.5 %. And global economic growth is slowing, and that will reduce what countries buy from the U.S.
Whilst exports fall, the million dollar question is imports. One can argue what will happen next, but consider that the growth of both imports and exports slowed to a snail's pace in 1Q2019. GDP subtracts exports from imports - and it is hard to believe anyone has a good understanding of what will happen next in a chaotic trade situation.
One final nail in the slowing economic outlook is the GDP forecasts from the Atlanta Fed and the New York Fed.
Atlanta's Fed GDPNow forecasting model for GDP:
Latest forecast: 1.2 percent — May 31, 2019
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 1.2 percent on May 31, down from 1.3 percent on May 24. A slight increase in the nowcast of the contribution of personal consumption expenditures to second-quarter real GDP growth from 1.99 percentage points to 2.03 percentage points after this morning's personal income and outlays report from the U.S. Bureau of Economic Analysis was more than offset by a decline in the nowcast of second-quarter real nonresidential equipment investment growth from 0.7 percent to -1.4 percent after yesterday's and today's economic releases.
The New York Fed Nowcast. Its current forecast:
May 31, 2019: New York Fed Staff Nowcast
- The New York Fed Staff Nowcast stands at 1.5% for 2019:Q2.
- News from this week's data releases increased the nowcast for 2019:Q2 by 0.1 percentage point.
- Positive surprises from prices data and data revisions accounted for most of the increase.
I would not bet against weak GDP growth in 2Q2019.
The Econintersect Economic Index for June 2019 long term decline began in July 2018 - and continued this month. This forecast flies in the face of the continuing improvement trend of Real GDP. There currently is a disconnect between GDP and the Econintersect Economic Index. Part of the reason is that GDP adjusts for trade, and we believe imports are an essential element of economic activity on Main Street. Further, GDP believes economic activity includes inventory, whilst Econintersect ignores inventory. If imports and inventory were ignored - GDP growth would have been less than half of the headline number.
Economic Releases This Past Wee
The following table summarizes the more significant economic releases this past week. For more detailed analysis - please visit our landing page which provides links to our complete analyses.
Economic Release Summary For This Week
|Release||Potential Economic Impact||Comment|
|March Case-Shiller Home Prices||n/a|
The non-seasonally adjusted S and P CoreLogic Case-Shiller home price index (20 cities) year-over-year rate of home price growth slowed from 3.0 % last month. The index authors stated "Home price gains continue to slow. The patterns seen in the last year or more continue: year-over-year price gains in most cities are consistently shrinking".
|1Q2019 GDP - 2nd Estimate||rear review of economy|
The second estimate of first quarter 2019 Real Gross Domestic Product (GDP) was lowered from the advance estimates +3.2 % to +3.1 %.
0.6 % of this 3.1 % growth number is attributable to inventory growth (materials manufactured but not yet sold). Consumer spending was weak. The strength in this report is the trade balance not being a drag on GDP.
- consumption for goods and services improved adding 0.9 % to GDP.
- trade balance improved adding 1.0 % to GDP
- inventory change added 0.6 % to GDP
- fixed investment added 0.2 % to GDP
- government spending added 0.4 % to GDP
|April Pending Home Sales||n/a|
The National Association of Realtors (NAR) seasonally adjusted pending home sales index remains in contraction and declined.
Econintersect's evaluation using unadjusted data:
- the index growth rate accelerated 3.5 % month-over-monthand up 0.4 % year-over-year.
- The current trend (using 3-month rolling averages) is accelerating and marginally in expansion
- Extrapolating the pending home sales unadjusted data to project May 2019 existing home sales would be down 0.7 % year-over-year for existing home sales.
|April Personal Income and Outlays||spending slowing|
The headline data for April shows little change in inflation-adjusted growth for income and expenditures.
Consumer income growth year-over-year is now much less than the spending growth year-over-year. For sustained growth of expenditures, income needs to grow at nearly the same rate.
Real Disposable Personal Income is up 2.2 % year-over-year, and real consumption expenditures are up2.7 % year-over-year. The savings growth rate was relatively unchanged.
|Surveys||manufacturing surveys slow growth, consumer confidence high|
Conference Board Consumer Confidence - The latest Conference Board Consumer Confidence Index'sheadline number is 134.1 (1985=100), up from 129.2 in April. Consumer confidence had been on a multi-year upswing. The current volatility is showing uncertainty by consumers. Certainly, consumer confidence is better than last month.
Dallas Fed Manufacturing - This survey remains in positive territory year-over-year with subindices new orders decreasing (and in expansion) and unfilled orders declined and marginally in contraction. This should be considered a worse report than last month.
Richmond Fed Manufacturing - The important Richmond Fed subcategories (new orders and unfilled orders) were no growth or in contraction. This survey was much weaker compared to last month despite improvement in the main index.
Chicago PMI - The Chicago Business Barometer increased by 1.6 points to 54.2 in May from 52.6 in April.
Michigan Consumer Credit - The final University of Michigan Consumer Sentiment for May came in at 100.0 - down from the preliminary of 102.4, up from the April final of 97.2, and up from the March final of 98.4.
|Weekly Rail Counts||Definitely not positive news|
Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.