MNI ANALYSIS: June Durables, Trade Data Lift Q2 GDP Estimates

By Vicki Schmelzer

     NEW YORK (MNI)   - June durable goods and trade data, released Thursday,

prompted some economists, and the Atlanta Fed, to raise their estimate for Q2

GDP, due out Friday. 

     Heading into the numbers, MNI's median estimate for advance Q2 GDP was 2.6%

versus the 1.4% gain in the third reading for Q1. The pre-data Q2 range was 1.9%

to 3.0%. 

     The MNI survey has been updated and now shows an expectation for a 2.7%

increase in advance GDP for Q1, with a range of 1.9% to 3.5%.

     June durable goods rose 6.5%, with ex-transportation at 0.2%, while June

trade data showed the deficit narrow to $63.9 billion from a revised $66.3

billion in May. 

     In response to the data, JP Morgan raised its Q2 GDP forecast to 3.5% from

3.0% prior. 

     "This upward revision comes primarily through the details related to trade

and inventories, and we now think both components will be close to neutral

factors for growth in 2Q (we had previously expected a total drag of 0.5%-pt

from both components before this morning's reports)," said Daniel Silver,

economist at JPM. 

     Ted Wieseman, economist at Morgan Stanley, raised his Q2 estimate to 3.2%

from 2.6%. 

     Looking at the trade data, he saw "net exports adding 0.1pp to Q2 GDP

growth instead of subtracting 0.1pp, with real exports expected to be up 3.4%

instead of 2.2% and imports 1.9% instead of 2.1%."

     On durable goods, "We see inventories adding 0.7pp to Q2 GDP growth now

instead of 0.4pp after subtracting 1.1pp in Q1," Wieseman said.

     Coming on the heels of 1.4% growth in Q1, a 3.2% reading for Q2 "would

leave H1 at 2.3% annualized, modestly better than the 2.0% 2011-16 average and a

bit ahead of our, and the FOMC's, median 2.2% full year estimate," he said. 

     Stephen Stanley, chief economist at Amherst Pierpont, raised his Q2 GDP

estimate to 3.3% from 3.1% after the morning data. 

     "The June goods trade deficit came in noticeably better than expected,

narrowing by about $2.5 billion, about $1 billion better than my forecast; Both

exports and imports of merchandise were considerably stronger than I had

expected in June," he said.  

     This alone would imply a Q2 GDP lift of "almost two tenths," Stanley said. 

     Then "wholesale and retail inventories both advanced by 0.6% in June,

considerably more than anticipated" and Stanley raised his "GDP projection for

inventories by a few billion to account for the June numbers" which caused him

to adjust his overall GDP estimate to 3.3%.

     "I am feeling pretty confident that barring crazy revisions tomorrow,

growth in the first half of the year will have averaged at least 2%," he said. 

     Andrew Hunter, chief U.S. economist at Capital Economics, was not altering

his Q2 GDP forecasts, but acknowledged upside risks. 

     "Excluding transport, core orders increased by a relatively subdued 0.2%

m/m, but May's reading was revised up from +0.3% to +0.6%" and "More

importantly, although orders for non-defense capital goods (ex-aircraft) edged

lower in June, shipments in the same category increased by 0.2% m/m, leaving the

three-month annualized growth rate at a fairly healthy 4.2%," he said

     These readings would suggest a "similar gain in business equipment

investment" in Friday's Q2 GDP release, Hunter said. 

     "Both wholesale and retail inventories increased by 0.6% m/m in June,"

which supports Capital Economics' "assumption that, after subtracting more than

1% point from first-quarter GDP growth, inventories made a small positive

contribution in the second quarter," he said.

     Overall, Thursday's data supported CE's view that "GDP increased by around

2.8% annualized in the second quarter," Hunter said. 

     Also Thursday, the Atlanta Fed updated its final GDPNow forecast (real GDP

growth) for Q2 2017 to 2.8%, up from 2.5% on July 19. 

     "The forecast of the contribution of inventory investment to second-quarter

growth increased from 0.54 percentage points to 0.82 percentage points after

this morning's advance reports on durable manufacturing and wholesale and retail

inventories from the U.S. Census Bureau," the Atlanta Fed said.

     "The next GDPNow update will occur after the U.S. Bureau of Economic

Analysis updates the "Underlying Detail" tables following the 2017 annual

revision of the National Income and Product Accounts. The updated "Underlying

Detail" tables are scheduled to be released by August 4," the Atlanta Fed noted.

--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com

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