Deutsche Bank's Permaclown Economist Revises His Q2 GDP From 2.4% to 1.0%
Some stunning bearish commentary from the staple CNBC goto analyst (Joe Lavorgna as if the clarification is needed) when worthless permabullish commentary is required. "We expect Q2 real GDP growth to be revised down sharply from +2.4% to +1.0% because of lower inventories (-$25B) and construction (-$4B) as well as a larger trade deficit (+$15B)." In other news, Zero Hedge still calls, and has for about 4 weeks now, a final Q2 GDP of under 1%, and under -3% when the impacts of the stimulus are excluded.
Commentary for Wednesday: The most recent economic data have turned over and we doubt the next batch of data is going to provide weary financial markets with much respite from weak numbers. Existing home sales fell -27.2% in July to 3.83M units, the lowest level since 1995. This collapse in sales, which partly reflects payback from the expiration of the homebuyers’ tax credit and partly the result of a tepid labor market, pushed the months’ supply of homes for sale up to 12.5 months; this compares to 8.9 previously. In terms of regions, all four areas of the country were down well over 20% in the month. The only positive in the report was news that median home prices remain in positive territory, as measured on a year-over-year basis (+0.7%). Of course, if sales do not improve, then rising inventories could then weigh on home prices going forward. Whether this happens will largely be a function of the labor market and whether it can continue to mend. Fortunately, housing affordability remains near an all-time record high, and the recent decline in interest rates, at the margin, should help. However, we really need to see the labor market improve but at the moment, we believe the best we can hope for is private sector job gains around 75k, which is what we are projecting for August private payrolls, released next Friday.
While the correlation between monthly percent changes in existing home sales and new home sales has averaged just 0.09 over the past five years, we expect new home sales to remain depressed, owing to the same factors that are afflicting the housing sector, namely a hangover from the homebuyers’ tax credit and the soft labor market. On the surface, this morning’s durable goods orders should look good. They are an important series because they provide us with a read on capital spending which has been an economic bright spot. July durable goods orders are projected to be up 3.0% on the back of rising aircraft orders, but excluding transportation, orders are likely to be unchanged. (We had been looking for a 1.0% increase but cut our estimate.) Nondefense capital goods orders, which we consider to be the core of the report, rose 0.2% in June after a huge
4.8% increase in May. We expect this series to be flat as well.
Regarding the rest of the week, we expect tomorrow’s jobless claims for the week ending August 14 to edge up further, from 500k to 510k. We believe these numbers are being inflated by the layoff of Census workers. On Friday we get Q2 GDP revisions, the final August reading on consumer sentiment and a speech by Mr. Bernanke on the economic outlook. We expect Q2 real GDP growth to be revised down sharply from +2.4% to +1.0% because of lower inventories (-$25B) and construction (-$4B) as well as a larger trade deficit (+$15B). We expect the final print on consumer sentiment to be revised down to 69.0 from 69.6.