The Avalanche Of Q2 GDP Downgrades Begins

Tyler Durden's picture


With all eyes firmly focused on the dismal Q1 GDP print and summarily dismissing it as 'noise', backward-looking, 'weather', and 'exogenous'; today's worrying spending data has sent the serial extrapolators among the sell-side economist herd scrambling to downgrade over-exuberant Q2 GDP expectations (five so far). One glance at this chart is all one needs to know about the "bounce back" in pent-up demand spending (that is not there). As Bank of Tokyo-Mitsubishi's Chris Rupkey told Bloomberg, "Don’t start betting on those 3% GDP numbers yet." This only trumped Goldman Sachs 'oh-so-embarrassed-again' Jan Hatzius who slashed his exuberant 4% Q2 GDP growth estimate to 3.5% (for now).

Five so far...

Goldman Sachs: We reduced our Q2 GDP tracking estimate by five-tenths to 3.5%.

1. The May personal spending report was weaker than expected. Personal income grew +0.4% (vs. consensus +0.4%) in May. The core wages and salaries component grew 0.4%. Other personal current transfer receipts grew a strong +1.9%, related to the Affordable Care Act. Personal spending rose a smaller-than-expected +0.2% (vs. consensus +0.4%). Back-revisions to previous months reflected the large downgrade to Q1 healthcare spending found in yesterday's GDP revision. As a result of spending growing less quickly than income, the personal saving rate increased three-tenths to 4.8%.

2. The available data on healthcare spending in Q2 has not been consistent with the way we assumed the Commerce Department would continue to account for the Affordable Care Act, which would have resulted in a boost to growth.

Action Economics: Q2 GDP 2.5% from previous 3% expectation

Today's U.S. reports included an expected 0.4% personal income rise in May, but with a surprisingly weak spending trajectory through April and May that followed huge downward Q1 revisions revealed in yesterday's GDP report to leave a substantial downgrade in our growth estimates for Q2. We now expect a 2.5% (was 3.0%) real GDP growth rate in Q2 with an anemic 1.5% (was 2.7%) clip for real consumption as consumer caution has apparently increased.

Bank of Tokyo-Mitsubishi: "Don’t start betting on those 3% GDP numbers yet"

"Consumer spending was knocked back big from 3.1% to the slow-growth zone of 1% yesterday for the first quarter," he wrote in a note. "The second quarter bounce from the cold winter weather is not yet evident as spending is running just 1.2% through May.  Don’t start betting on those 3% GDP numbers yet, but the report on July 30 will have the annual benchmark revision so the story could still change."

Barclays: 2.9% annualized Q2 growth, down from 4%

"On balance, this report suggests a more modest rebound in Q2 consumption growth following a softer Q1 than we had previously expected."

TD Ameritrade: cut to 3% from 3.6%.

"While there is plenty of scope for upside surprise on the inventory build and net exports on the quarter, the risks at this point tilt to 3.0% or lower rather than higher."

So it appears that Q2 GDP hope-fest is about to the same way as the over exuberant Q1 GDP expectations...

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Thu, 06/26/2014 - 11:27 | 4897895 PartysOver
PartysOver's picture

Paging Mr Holme, Mr Sherlock Holmes.   Please meet your No Shiat Sherlock Party in the lobby.

Thu, 06/26/2014 - 11:28 | 4897902 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

It appears the unicorms crapping skittles and belching sunshine are afraid.

Thu, 06/26/2014 - 11:29 | 4897911 max2205
max2205's picture

Govt will release whatever number it needs to keep things going

Thu, 06/26/2014 - 11:32 | 4897935 spastic_colon
spastic_colon's picture

yeah...don't worry we have a non-factual "sentiment" indicator tomorrow to save us all from reality

Thu, 06/26/2014 - 11:49 | 4898022 Headbanger
Headbanger's picture

Oh GTFO with that crap Max!

The Gubmint can't do fucking SHIT about keeping anything going now!

And in case you haven't noticed.. it hasn't been working too well lately either!

We're fucked!  So get used to it.

Thu, 06/26/2014 - 11:52 | 4898039 PartysOver
PartysOver's picture

HB,  Ponzi's can go on for a long time.   Agree that the US is screwed.  But when?

When it does go BOOM it's going to be vicious.

Thu, 06/26/2014 - 13:02 | 4898375 Cruel Aid
Cruel Aid's picture

With us corporations buying their own stock to support their p/e and the central bank, who has a vested interest in the us economy, buying stocks worldwide, the us stock makets could keep going higher or flat. Either way, it may not tank for a couple more qtrs.

This article is wishful thinking. Hedging is a decent bet at this point anyway, lock it in.

Thu, 06/26/2014 - 11:35 | 4897949 CrashisOptimistic
CrashisOptimistic's picture

Well, yes, but then there is that other reality:

"The Bond Guys Usually Get It Right."

10 year down to within smelling distance of 2.5% again.

Thu, 06/26/2014 - 11:52 | 4898041 disabledvet
disabledvet's picture

You can do this in Zaire...but not in the USA...there's too much liquidity, innovation and mobility.

In short "recovery." So if you're establishing a "debt/inflation regime" governed through the use of "mental weapons of mass destruction" people will still seek out that which allows them to exist...survive...even thrive.

Everyone else playing this "game" simply eats themselves.

I would not be surprised to see a second quarter print of NEGATIVE five or even 7 percent here.

Thu, 06/26/2014 - 12:21 | 4898183 Eyeroller
Eyeroller's picture

Dang!  Just think of the rally -7% would get!

Thu, 06/26/2014 - 11:28 | 4897900 The Axe
The Axe's picture

Compter algo do not care....only have but

Thu, 06/26/2014 - 11:28 | 4897904 mayhem_korner
mayhem_korner's picture



Just as turds swirl when you flush.

Thu, 06/26/2014 - 11:31 | 4897919 PartysOver
PartysOver's picture

OK, that is a visual I did not need.   lol

Thu, 06/26/2014 - 12:42 | 4898280 Jack Sheet
Jack Sheet's picture

but the size of a turd bears no relation to the effort expended in producing it!

Thu, 06/26/2014 - 11:29 | 4897905 Government need...
Government needs you to pay taxes's picture

Goldman Sachs makes its living pissing on investors and explaining it as rain.  That organization is as fraudulent as the US Federal Government.  No surprise so many ex-Goldmanites take US government jobs.

Thu, 06/26/2014 - 11:49 | 4898016 NoDebt
NoDebt's picture

Since 2008 I have had increase difficulty identifying where the banks end and government begins.  

Thu, 06/26/2014 - 11:29 | 4897907 ENTP
ENTP's picture

After Final Revisions, I'm going to estimate .5% growth.  They will do whatever it takes to avoid the Recession tag.  Or I suppose, they could just rewrite the definition of a Recession like they do with how to calculate Economic Data Reports.

Thu, 06/26/2014 - 11:32 | 4897925 kowalli
kowalli's picture

actually q2=q1=-3.0 or less, but you can always blame hot summer and expect q3=8% =)

Thu, 06/26/2014 - 11:36 | 4897959 CrashisOptimistic
CrashisOptimistic's picture

And there will be Treasury shorts jumping out of windows.

Thu, 06/26/2014 - 11:29 | 4897910 RiskyBidness
RiskyBidness's picture

But we need to add in hookers, coke, and illegal immigrant spending and we will get to 3%.  BTFD!!

Thu, 06/26/2014 - 11:32 | 4897929 kowalli
kowalli's picture

sure not=)

Thu, 06/26/2014 - 12:00 | 4898083 barre-de-rire
barre-de-rire's picture

of course you will.


 just think about WHY they add hooking & drugs in the base of the math for the gdp... it is only to get positive numbers....


even a 9 years old whould guess that.

Thu, 06/26/2014 - 13:09 | 4898409 kowalli
kowalli's picture

i think they already add, but they can do it twice,if you want

Thu, 06/26/2014 - 13:23 | 4898465 wearef_ckedwith...
wearef_ckedwithnohope's picture

And don't forget that the crowd who get income tax refunds got them by the end of the first quarter.  Meaning that their contribution to the "consumption" aspect of GDP already occurred before the 2nd quarter.  The "delayers" either don't get a refund or are less inclined to immediately spend it.

Not good news for the 2nd qtr.

Thu, 06/26/2014 - 11:34 | 4897912 Rainman
Rainman's picture

Here comes monster inventory building, whether you buy it or not is immaterial.

Think chinese ghost cities.

Thu, 06/26/2014 - 11:30 | 4897913 JRobby
JRobby's picture

What a surprise

Thu, 06/26/2014 - 11:30 | 4897918 ejmoosa
ejmoosa's picture

So, effectively for the first six months of the year, the economy will have contracted.  


Who will be the first major economist to suggest Recession?

Thu, 06/26/2014 - 11:32 | 4897932 ENTP
ENTP's picture

Tyler Durden

Thu, 06/26/2014 - 11:58 | 4898072 disabledvet
disabledvet's picture

I've been saying we're actually in one for over a year.

I know I've been in one for over a year as well. And "these aren't ghost cities" but "ghost monies."

The City must therefore default as the "monies" no longer...if they ever did...exist.

Thu, 06/26/2014 - 11:33 | 4897941 kowalli
kowalli's picture

you should add - "live economist"

Thu, 06/26/2014 - 11:35 | 4897955 Winston Churchill
Winston Churchill's picture

Never mind with the correct deflator for GDP we have been negative

since 2005.

The emperor is prancing aroud with his dick slapping in the wind,

and everyone is ignoring it,except the rest of the world that is.

Thu, 06/26/2014 - 12:11 | 4898135 Nevsky
Nevsky's picture

Dear Sir,


Is there a way to post warnings before such a acute but graphic imagery?

Thu, 06/26/2014 - 11:37 | 4897960 mayhem_korner
mayhem_korner's picture



The spell checker on the MSM teleprompters is irreparably set to convert "recession" into "recovery."

Thu, 06/26/2014 - 11:33 | 4897934 buzzsaw99
buzzsaw99's picture

criminal banks issuing lying self serving prognostications about totally fictional fascist gubbermint numbers.

Thu, 06/26/2014 - 11:33 | 4897937 madcows
madcows's picture

what a bunch of tools.  they still expect growth of 3-4% in Q2.  get lost.

Thu, 06/26/2014 - 11:55 | 4897950 ENTP
ENTP's picture

You have to expect that, without it we would need to recalculate current valuations causing a massive amount of correction in what has been priced in.  IF 3 - 4% growth does not occur, that means that the "weather" excuse wasn't real, that the "pent up demand" suggestion isn't real and that of course, easy monetary policies do not always work and the Fed is quickly running out of tools on how to achieve all the value that has been priced into the market.

Thu, 06/26/2014 - 11:34 | 4897940 Jack Sheet
Jack Sheet's picture

There was quite evidently wanking in the planking.

Thu, 06/26/2014 - 11:34 | 4897944 mayhem_korner
mayhem_korner's picture

We now expect a 2.5% (was 3.0%) real GDP growth rate in Q2 with an anemic 1.5% (was 2.7%) clip for real consumption as consumer caution has apparently increased.


1) Translation = channel stuffing inventory build, which is not real growth.

2) "consumer caution" is laughable. When are consumers cautious about spending.  They just don't have the dough or the credit to buy stuff.

Thu, 06/26/2014 - 12:07 | 4898118 disabledvet
disabledvet's picture

There has been no inventory build...which by definition means we have not had a recovery. "Dropping dimes" as they say in Texas.

You have a recovery when you have an inventory build cuz "that shit ain't making money sitting on a shelf." This with zero demand prices must start to fall...collapse "everything gets sent back to the bank again."

California still looks good here. So do a few other places that are so small they just never built up the debt in the first place.

"The people will move to where they can win."

Thu, 06/26/2014 - 11:35 | 4897951 SheepDog-One
SheepDog-One's picture

Awesome! NICE job Fed! You've almost reached your 'goals' of complete implosion!

Thu, 06/26/2014 - 11:36 | 4897957 LostandFound
LostandFound's picture

What a shit show! Do you think the US will actually get a positive in Q2?

Thu, 06/26/2014 - 11:55 | 4898061 ENTP
ENTP's picture

No.  Do I think the US will communicate to the masses that Q2 GDP was positive?  Absolutely.

Thu, 06/26/2014 - 12:25 | 4898206 franzpick
franzpick's picture


Positive Q2:

Thu, 06/26/2014 - 11:37 | 4897963 SethDealer
SethDealer's picture

the fed can go blank themselves

Thu, 06/26/2014 - 11:41 | 4897975 ptoemmes
ptoemmes's picture

Wait a GodDamn minute....


Yesterday:  That's Hatzius for 4.0%

Today: "Jan Hatzius who slashed his exuberant 4% Q2 GDP growth estimate to 3.5% (for now)"


That's it.  Red Card.  Take your seat.  You don't get to play anymore due to gross cheating on GDP estimates.  Oh - and you CAN bite me!

Thu, 06/26/2014 - 11:47 | 4898008 SheepDog-One
SheepDog-One's picture

Fuckers are adjusting odds on y/y GDP faster than bookies at a dog track now.....seriously this is ridiculous. Go to hell you fuckstick bailed out bankster frauds.

Thu, 06/26/2014 - 12:10 | 4898036 cowdiddly
cowdiddly's picture

We now have entered the  "Bipolar" economy where all the trash is shoved in bad quarters and going forward we will have alternating GDP of -5% to +5%. But we will never have two quarters of negative GDP in a row, NEVER.

LMAO watching all the maggots squirm as the heat gets turned up.

"you can change the way things look, but you can't change reality" -Jim Grant

The Middle Class is DOA. I define the middle class as anyone who still has a job but cannot afford to buy their own politician, so guess what? It's You babe.

Thu, 06/26/2014 - 13:29 | 4898493 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

That's one way of looking at the middle class.

Thu, 06/26/2014 - 11:44 | 4897986 Seasmoke
Seasmoke's picture

They threw the baby in with the sink in Q1. They will print a positive number , no matter what in Q2. No way they stick a Recession tag on the Mack Daddy. 

Thu, 06/26/2014 - 14:07 | 4898735 Muppet
Muppet's picture


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