Q2 GDP Preview – Guns a Blazin’ - July 25, 2018

Q2 Gross Domestic Product (GDP), which is the largest measure of goods and services for the economy, will be released Friday.

  • The Atlanta Fed’s GDPNow model estimates growth of 4.5%. It would be the best reading since 2014 (U.S. BEA).

  • Friday’s report is an early read and is subject to revisions.

Drivers of growth are showing up in most categories.

  • Stronger consumer spending

  • Stronger business spending

  • Acceleration in U.S exports

  • Faster government spending

Looking ahead

Is this a one-quarter rebound from a sluggish Q1 – we’ve had false starts before – or will stronger momentum continue through the second half of 2018?

Forecasting GDP is like forecasting the weather. Models are quite complex, but projections come with a high degree of uncertainty.

A jump in exports in Q2 is unlikely to spill into the second half of the year, dampening one driver of the economy.

However, higher gasoline prices and trade tensions have yet to have a meaningful impact on consumer and business confidence (Conference Board, NFIB).

Interest rates are ticking up but remain low, fiscal stimulus continues to support the economy, and deregulation that began last year has yet to fully bear fruit.

Risks abound, including a full-blown trade war, but tailwinds for the economy suggest cautious optimism is in order.