Jack Dunn - Reclaiming Common Sense

GDP High Jump - How High Can the Economy Jump?


The Quarterly Gross Domestic Product (GDP) Report is the ultimate lagging indicator. If we have two quarters of negative growth then we are in a recession. If the GDP goes negative for two quarters we will know it before the GDP data is released. We will not see a negative top line GDP this quarter. The economic data that has been released so far indicates that the GDP should continue to grow. There are two GDP numbers: The Same quarter, annual, Real GDP and the "seasonally adjusted" headline annualized GDP. The annualized GDP is a hypothetical number of how fast the economy would grow over the next year if it grew at the same rate for the next three quarters as it did during the current quarter. There are four basic numbers that have to be considered within these two GDP evaluations: The Personal Consumption Expenditures, the Gross Private Domestic Investments, Imports/Exports, and Government Expenditures.


The Annualized GDP Could Exceed 4%. The headline number during the third quarter has been all over the place since 2005. Contrary to what is being reported elsewhere, the annualized GDP has exceeded 3% four times since 2005 and has hit 2.8% twice since 2005. The surge during 2010 was as we were coming out of the recession. The 5.2% annualized GDP during the third quarter of 2014 was a head-scratcher. The "preliminary final" MARTS Retail number for the third quarter was 1.436 trillion as compared to 1.384 trillion during the third quarter of 2016. The data for August was the preliminary data and the data for September was the advance data. The august number should see upward revisions due to end of the Summer spending.


Real GDP Should hit between 2.5% and 2.7%.  We saw a stretch of Real GDP peak during the first quarter of 2015 under President Obama. We then saw a slide of five quarters. The economy was slowing during 2015 into 2016. We have seen improving Real GDP data since the second quarter of 2016, Once again, the third quarter real GDP rate is "all over the place."  Will it be 2.4%, 2.6%, 2.8% or can it creep up to the 3.1-3.2% levels of 2010Q3 and 2014Q3?


Retail Sales have been up 4% Year to date. The MARTS Retail data has shown 3-5% growth for a rolling year every month of this year. Right now the past quarter was right at 4.2%. Retail sales, again using the "preliminary final" numbers stands at $1.436T compared to $1.448T during 2017Q2. Third quarter this year is 3.7% higher than third quarter last year. Personal Consumption Expenditures accounted for 2.24% of the 3.1% Read GDP last quarter, or roughly 70% If it accounts for 70% of the third quarter data then the Real GDP has a "floor" of 2.2%.


Gross Private Domestic Expenditures (GPDI) should rise this quarter. The ISM Manufacturers Index hit a 13-year high this month. Durable good orders were up. There is a Consumer Confidence index that measures sentiment, conditions, and expectations out of the University of Michigan. All three are up by double digits over last year.  New Home sales are down slightly over last year through two months of Third Quarter. WE are on track for a better year than last year, year to date. We will get the September new home sales data this week. Last quarter this added 0.64% to the GDP.


Imports and Exports are a crapshoot. We need to improve our export data by "importing" jobs so that we can export more goods. We need to build things in America instead of having them built elsewhere and importing them into the country. last quarter this "spread" between imports and exports added 0.21% to the GDP.


Government spending could add to the GDP - Most likely will reduce the GDP. Government spending has increased the GDP during the third quarter during 2014, 2015, and 2016 (0.39%, 0.21%, and 0.09% respectively.) Government spending reduced the GDP during the first two quarters of this year (-.011% and -0.03% respectively.)


Confidence is up. Retail sales are up. New home sales are doing better than last year. Existing Home sales are doing better than last year. There were more people working full-time jobs during September than any other prior September. If the import number is good, and if government spending has a positive impact on the GDP, and if GPDI minus structures improves (structures should improve) that a headline number of 4% is probable and a end of year Real GDP over 3% is possible.


It's the economy.