Remember Michael Feroli? The JPM economist who "predicted" US Q4 GDP would be boosted by 0.5% due to iPhone sales (don't laugh: yes, US GDP, not that of China where the iPhone is actually produced, but the US where the consumer merely incurs more record student loans to be able to afford it)? Well, the same JPMorganite has now cut his Q4 GDP expectation to 1.5% for all the same reasons why we penned the second Q3 GDP revision: namely ugly internals, a surge in hollow government and inventory contributions to "growth", and a collapse in the purchasing power of the US consumer (who somehow is still expected to boost Q4 GDP with iPhone sales). And while there is no mention of the iPhone in his just released downward revision, he still believes the cell phone will provide a boost to Q4 GDP. In other words, of the 1.5% in GDP growth in Q4, the iPhone will account for 33% of this! One really can not make this up.
- Real GDP growth for 3Q12 is revised up to 2.7%, but forecast for 4Q12 is lowered to 1.5%
- Downward revision is prompted by a large inventory build in 3Q12, weak consumer spending through Oct
- It is hard to know how much Hurricane Sandy affected Oct-Nov data including upcoming labor, ISM reports
The forecast for real GDP growth in the current quarter has been revised down to 1.5% saar (from 2.0%). Part of the downward revision reflects this week’s second report on 3Q12 GDP. Although real growth for last quarter was revised up to 2.7% saar (from 2.0%), the composition of growth now shows appreciably more inventory accumulation and weaker real domestic final sales, both negatives for current-quarter growth. In addition, real consumer spending declined 0.3% samr in October, weaker than expected on the basis of October retail sales and expected hurricane effects. Even assuming a healthy rebound in spending in November and December, real consumer spending growth this quarter appears to be tracking 1.5%, below the prior forecast of 2.0%.
Not all incoming data are weak. New orders for core capital goods surprised by rebounding 1.7% samr in October despite a strong tendency for such orders to be unusually weak in the first month of a quarter, even on a seasonally adjusted basis. The pop in core capital goods orders sharply reduces risks of a plunge in capital spending this quarter as business waits to see how fiscal cliff issues are resolved.
There is still very little hard information about how fiscal policy negotiations are proceeding. The forecast continues to assume that negotiations are successful and that policy tightening related to fiscal cliff legislation amounts to about 1% of GDP next year, with the increase in payroll taxes the largest part. Even under this relatively benign outcome, higher payroll taxes are expected to hold real GDP growth to 1.0% saar in 1Q13 and 1.5% in 2Q13, mainly through their effects on consumer spending.
Upcoming November reports on labor market conditions, the ISM surveys, and auto sales would usually be important in conditioning views on economic performance. But it is hard to know how much the data will be affected by the after effects of Hurricane Sandy. The labor market forecast looks for payroll employment growth to slow to 100,000 in November from an average 170,000 per month over the prior three months, mainly reflecting the destruction and lingering power outages from the hurricane. But it will be very difficult to separate effects of Sandy from underlying hiring. Similarly, the forecast looks for a modest increase in the ISM manufacturing survey to 52.0, but mainly on the view that demand temporarily will be boosted by needed supplies and materials for rebuilding. Finally, auto sales are expected to increase from a pace of 14.2 million in October to 15.0 million in November, with the improvement largely reflecting the lift from sales that had been delayed by the hurricane.
But hey: there's always the iPhone :)