Last week we noted that JPM's Michael Feroli estimated that due to a major downward revision of inventory build of non-durable goods, which the BEA had overaccounted for, the GDP print of 2.4% released two Fridays ago was actually 1.7%. Today, the stripping of the GDP print from upward biased data continues, and Feroli once again whacks the GDP number, which he now sees at 1.3%, or essentially 50% of the actual released number. This is again due to BEA's overoptimism, as today's data on wholesale inventory buildout was also far lower than the unrealistic BEA assumption (will the BEA ever underestimate a number? any number?). JPMorgan's conclusion: "The June data released so far suggests Q2 GDP is tracking closer to a 1.3% annual rate of increase, well below the 2.4% in the initial release." By the time all the overoptimistic assumption are eliminated, Q2 GDP will end up negative, and Goldman's 1.5% estimate of GDP growth in H2 will prove to be, as we expected, overoptimistic. Of course, this number is not revised for all the governmental Keynesian transferism, without which GDP would would be double digit negative. We leave it up to you to figure out what this means for Q3 growth now that there is no fiscal stimulus, and if the Fed does not launch QE2, there will be no monetary stimulus until late September 21 at the earliest.
From Michael Feroli:
When the Bureau of Economic Analysis (BEA) prepares their initial estimate for GDP, they need to make assumptions for some of the source data for the last month of the quarter, which is not available at the time of the initial release. Over the ensuing weeks that data becomes available and is incorporated in the revised estimate. When the BEA released their initial estimate of Q2 GDP on July 30th, they made some assumptions about June inventory and international trade data that seemed fairly extreme, with a very large contribution from inventory building, and a very large drag from foreign trade.
So far, BEA's assumption on June inventories have indeed looked too strong relative to the data. Today's June data on wholesale inventory building was substantially weaker than what the BEA had assumed, implying a subtraction of 0.4%-point from the initial print of GDP. This follows last week's June nondurable inventory data, which was also weaker than what BEA had assumed. Altogether, the June data released so far suggests Q2 GDP is tracking closer to a 1.3% annual rate of increase, well below the 2.4% in the initial release. That said, we would be hesitant to say Q2 is looking like 1.3% growth, full stop, because tomorrow's international trade data for June could lead to yet another change in views on what really happened last quarter, and quite possibly add back some of the GDP that is being taken out by the June inventory data.
Please no jokes about how high David Bianco will upgrade his S&P EPS on this latest piece of what Bank of America considers "non-news."