The third release (second revision) of Q2 2015 GDP was out this morning, and the results are broadly positive. Growth was revised up from a solid 3.69% QoQ SAAR to 3.91% QoQ SAAR. More importantly, the structure of revisions was very positive. Consumption was revised up (primarily in services) as was investment, with both housing (residential fixed investment) and corporate (non-residential fixed investment) getting upgraded.
We would also note that as of the initial release of Q2 growth, the seasonal pattern we’ve seen since the recession (extremely strong mid-year growth and very weak Q1) is being adjusted for with new procedures at the BEA. That adjustment process, all else equal, should have been a headwind for Q2 growth measurements. As shown in the table, though, Q2 growth was anything but weak. For Q3, there are a variety of trackers out there, including the Atlanta Fed’s GDPNow calculation. GDPNow is currently tracking +1.4% QoQ SAAR for Q3. That said, it’s calculated input for inventories is deducting 1.9 ppt from that forecast. For context, that would be the biggest inventory drag since Q3 2011, and represents a huge decline QoQ. Given downward revisions to the pace inventories piled up in Q2, we think that -1.9 ppt impact is too high.
Other trackers for GDP are suggesting growth in the 3% range. For example, last night we sent a note to Institutional clients in The Closer showing the Chicago Fed’s National Activity Index has averaged 0.05 for the months of July and August, despite a large drop in the latter month. That would suggest growth of around 3% based on the historical relationship between CFNAI and GDP, with a slight risk to the downside.