Wall Street measures economic growth (GDP) on a quarter-over-quarter basis. This is an important point because GDP can be distorted by arbitrary blips in the data. In other words, it doesn't accurately reflect evolving and long-term macroeconomic trends. What you really want to look at? Year-over-year growth rate.
Here's an amusing example why.
In the third quarter, the U.S. economy grew 3.2% on a quarter-over-quarter basis (again ... Wall Street's preferred measure). Now, this may sound funny, but a not-so-trivial amount of that increase came from soybean exports.
Yes, soybeans.
Of the 3.2% increase to GDP, "net exports contributed an outsized 0.87 points, representing almost 30% of the increase and marking the largest contribution since the fourth quarter of 2013," writes U.S. Macro analyst Christian Drake in today's Early Look.
Here's more from Drake:
"As has been well highlighted here and elsewhere, the ramp in agricultural exports was primarily responsible for the trade balance improvement with the +214% QoQ bonanza increase in soybean exports providing a one-time juicing to the numbers. Expectedly, we’re getting some giveback here in 4Q with soybean exports currently tracking -51% QoQ.
Don't expect soybeans to goose fourth quarter numbers.
As Drake points out (shown in the Chart of the Day below) recently reported U.S. trade data has been coming in weaker than expected. "The October Trade Balance was down -17% month-over-month on a nominal (volume + price) basis and -11% on a real/volume basis," he writes. What this data suggests is that, in the context of GDP, fourth quarter net exports will decline, tracking at -6.6% QoQ (vs +7.1% QoQ in 3Q16).
We try not to let soybeans get in the way of accurately forecasting the economic outlook. Instead, we look at the year-over-year change. On that score, the data has been crystal clear. Since the first quarter of 2015 when GDP peaked at 3.3%, the U.S. economy has been in steady decline, from 3% to 2% to 1%. That's why we called out U.S. #GrowthSlowing at the end of 2014.
Going forward, however, the U.S. economy appears to be accelerating into the fourth quarter. In the second quarter, GDP bottomed at 1.3% followed by a reading of 1.6% for the third quarter. Now, our predictive tracking algorithm suggests GDP will be 1.8% in the fourth quarter. (To get caught up on our #GrowthAccelerating call, click here, here and here.)
Bottom line is the U.S. economy will close out 2016 on a strong note. Consumer Confidence, Business Confidence, Durable Goods, Retail Sales, ISM Manufacturing and ISM Services all showed moderate to significant increase in their latest readings. (Click here to read a recap of recent economic data.)
So forget about soybean distortions, stop listening to Wall Street "forecasts," and stick with what works. Don't argue with the data. The long-term trends are clear right now.
U.S. #GrowthAccelerating
