Real-Time Macro: The State of the U.S. Economy (2Q18 GDP Update)

Nothing overly remarkable in the 1^st revision to 2Q GDP although it was revised higher (against estimates for a modestly negative revision). There were also positive revisions to the Trade Balance and Investment (nonresi investment and inventories) offsetting a negative revision to Consumption (Services/Durables/NonDurables all marked modestly lower).

Across the Subaggregates: Real Final Sales (GDP less Inventory Change), Gross Domestic Purchases (GDP less exports, including imports), Real Final Sales to Domestic Purchasers (GDP less exports less inventory change) were all revised higher.

Again, a positive revision on an already strong print effectively serves to solidify the rate-of-change peak in growth.

This also raises the probability of a transition to a globally harmonized deceleration as we move into 2019. The deceleration may remain of the passive-aggressive variety domestically (vis-à-vis the consumer and consumption nearer-term). Downside in the savings rate coupled with rising prospects for accelerating wage growth and lower inflation (income ↑ + inflation ↓ = real income/purchasing power up) should continue to provide some measure of support to household consumption capacity.

Precision timing on an inflection in wage growth is quixotic, particularly given that fiscal stimulus layered atop an already taut economy/labor market is largely unprecedented …. It’s also why we haven’t gone explicitly negative on consumer discretionary just yet.

Our GDP estimates vs. Wall Street consensus

Below are our forecasts for U.S. GDP versus Bloomberg Consensus numbers:

• 3Q18E: Our estimate is 2.76% YoY and 2.45% QoQ; versus Bloomberg Consensus estimates 2.90% YoY and 3.00% QoQ
• 4Q18E: Our estimate is 2.46% YoY and 1.10% QoQ; versus Bloomberg Consensus estimates 3.00% YoY and 2.78% QoQ
• 1Q19E: Our estimate is 2.41% YoY and 2.00% QoQ; versus Bloomberg Consensus estimates 3.00% YoY and 2.40% QoQ

Cycles, by virtue of being a cycle, cycle.  And cycles, being as they are and, again, by virtue of being a cycle, are characterized by an early, mid and late phase temporal procession.  And everyone knows you can’t have a late-cycle crest in a consumption economy without some consumer ebullience. 

Anyway, this week's Conference Board Confidence series rounds out the August data. Resurgent sentiment continues to characterize the summer zeitgeist.

Consumers, for their part, remain enamored of Present Conditions characterized by improving wages, a tight and tightening labor market and all-time highs for asset prices. The forward outlook rose +5.2 points, rebounding to 6-month highs but still equaling lower highs relative to the immediate post tax-reform first quarter euphoria. 

A mixed bag across the primary series in August with Conference Board Confidence & Bloomberg Consumer Comfort improving sequentially while the University of Michigan's Consumer Sentiment data moderated for a second month.