Incoming Data Releases: Stay Focused

We expect data coming in next week to be very noisy. Early in the week we have building permits, FHFA home price index and the S&P Case Shiller home price index, consumer confidence, durable goods orders, wholesale inventories, pending home sales, new home sales, and then the FOMC meeting, during which the Federal Reserve (Fed) will decide on what to do with interest rates. We believe that the Fed is going to increase the federal funds rate by 75 bps.

But the number that is going to make the most noise is going to be the released on Thursday, July 28. This will be the release of the Q2 GDP growth numbers (first estimate), which many analysts estimate is going to be negative once again. We have GDP in the second quarter at 0.7% annualized but agree that the risk is on the downside.

However, even if the second quarter result comes in negative, the probability that the NBER would call for a recession in the US is very low. The reason for this is that the negative number in Q1 was more of a fluke than a representation of the real state of the US economy during the first quarter. Imports of goods and services were so strong during the first quarter that the growth in imports, which enters GDP with a negative sign, overwhelmed all the other sectors of the economy that had posted growth.