Well, it’s official.
One of the biggest permabulls on the Street is apparently turning bearish as Deutsche Bank’s chief US economist Joseph LaVorgna throws in the towel after taking a look at August trade date.
Here’s the call:
We are reducing our estimates of Q3 and Q4 real GDP growth due to a significant deterioration in net exports. Based on the complete August international trade data—we received the advance report last week—US exports are expected to be unchanged in the quarter. This is down from a 5.1% annualized increase in Q2, which followed a -6.0% West Coast port- and weather-related decline in Q1. At the same time, imports are on track to increase 10.0% in the quarter, the fastest gain since Q4 2014. This would have the effect of widening the trade deficit by $64 billion, which equates to a negative 160 basis-point annualized drag on Q3 output relative to our prior estimate. Recall that in Q1 2015, net exports subtracted 192 bps off real GDP growth. In response to today’s trade data, we have lowered our Q3 real GDP growth forecast to 1.7% from 3.0% previously, and our forecast for Q4 real GDP growth has been trimmed from 3.0% to 2.3%. This has the effect of lowering 2015 real GDP growth, as measured on a Q4 over Q4 basis, from 2.6% to 2.1%. Moreover, we are cutting our 2016 forecast as well, albeit more modestly for reasons we will discuss in today’s US Daily Economic Notes. Real GDP growth for 2016 (Q4/Q4) is now projected at 2.7%, down three tenths from our earlier estimate.
Of course a soaring dollar isn't going to do anything to help the exports situation and as we've been at great pains to demonstrate with each passing NFP print, the fundamentals here are a veritable disaster, but at the end of the day, you can always hedge your bets and still preserve the "everything is fine" narrative by i) cutting estimates, and then ii) immediately blaming it all on the scapegoat of all scapegoats...
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