With GDP set to be revised (upwards we are sure) through the power of intangible accounting, the dismal reality of the Q2 GDP print is likely to get lost in the shuffle (especially given all the hope that a 'real' recovery is just around the corner). However, as comments regarding second quarter activity suggest, economic conditions decelerated from the first three months of the year. In fact, based on recent comments from key companies, a looming recession may be signaled by the GDP report this week. Of course, focusing on the bellwether stocks as an indication of reality will never do - instead we are treated to short-squeezed stocks-du-jour and manufactured EPS beats as evidence that "everything's great." It's not.
About those revisions...
Data revisions have the ability to change the economic landscape and the determination of business cycle strengths and turning points. In 2008, fourth quarter GDP was initially estimated to have declined by 3.8 percent. Nine revisions later the actual level stood at minus 8.9 percent. In other words, anything can happen during a benchmark revision.
On the awesomeness of economic conditions to come...
Comments regarding second quarter activity suggest economic conditions decelerated from the first three months of the year. In fact, based on recent comments from key companies, a looming recession may be signaled by the GDP report this week.
Transportation giant UPS is a key barometer for broad economic conditions, its quarterly results offering insight into global activity and trade. During its most recent conference call, CEO Scott Davis said, “Looking forward at the macro picture, though global economic expansion for the second half of 2013 is still expected, forecasts have been lowered in 10 of the 12 largest economies, including here in the U.S. One area the U.S. continues to struggle with is exports, especially to Europe.”
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Caterpillar is a good gauge of commodity demand, which is integral in determining trends in China, the world’s second-largest economy. While executives at the construction nd mining equipment manufacturer are not long-term bearish on the Chinese economy, they do see softer growth than many are expecting.
CEO Doug Oberhelman noted, “I am not one in the camp of a China implosion, that China will implode and drag the world down into a massive black hole.” Oberhelman said the company sees China as still healthy, but with a much slower rate of growth in the 5-to-8 percent range. “But that means a maturing of that market for construction equipment and all kinds of things,” he added.
Looking at the restaurant industry as a gauge of domestic demand and discretionary spending, McDonald’s CEO Don Thompson recently said the company expects the remainder of the year to be challenging. “We know we’re seeing ongoing global economic headwinds. We’re seeing flat or declining IEO markets and ongoing competition chasing fewer guest counts as a result of lessened discretionary spending.”
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Source: Bloomberg