U.S. ECONOMIC DATA IS ACCELERATING.
Over the past few weeks, we have revised up our estimates for fourth quarter U.S. GDP as the positive data rolled in. We also told subscribers to sell Long Bonds (TLT). Here's a brief rundown explaining why we think fourth quarter GDP will be better than we originally expected (even if its just a short-term blip).
1. DURABLE GOODS
Today's Durable Goods data was modestly better:
- Headline is up a big time (+4.8% sequentially) and up +2.1% year-over-year
- Aircraft – Private/Non-Defense Aircraft orders were the primary source of strength. Plane/parts orders were +94.1% month-over-month (+26% YoY). It's not a huge component, but it is volatile and moves like this can cause headline rips and tumbles.
- Durables Ex-Defense & Aircraft (a proxy for actual household demand) was up +0.3% sequentially and improving to +0.6% YoY, this marked the 1st month of positive growth in the last 8 months
2. RETAIL SALES
The retail sales “control group” (a good proxy for what goes into GDP) came in at +4.2% quarter-over-quarter growth rate last week. It was a good number in isolation, but there’s no avoiding this positively impacts our Q4 real GDP growth estimate, which we are now keen to revise higher. (Note: This is an important data point since consumption makes up 70% of GDP.)
As Hedgeye Senior Macro analyst Darius Dale wrote in a recent institutional research note:
“We don’t blindly buy into the perma-bull marketing narrative that is the “resiliency of the U.S. consumer”. That said, however, the data is what the data is and it currently paints a picture of resiliency – at least for now.”
BOTTOM LINE?
At least over the near term, U.S. growth is looking up for the fourth quarter of 2016. In short, don't fight the data.
