Originally posted August 25, 2016.
Ahead of the advance (first) report of 2nd quarter GDP, Markit Chief economist Chris Williamson estimated second quarter at 1.0%.
The reported result was 1.1% and it's likely to be downgraded tomorrow in the second estimate coming up tomorrow.
Today, Williamson forecasts "just under 1.0%" for the third quarter.
Service Sector Slowdown Intact
Williamson's third quarter estimate comes in a comment to today's Markit Flash U.S. Services PMI™ report that shows Service sector growth remains sluggish in August.
Key Findings
Weakest rise in services activity since February.
Payroll numbers expand at slowest pace for 20 months.
Business expectations remain stronger than the survey-record low seen in June.
Markit Services PMI
"Latest data signalled that new work expanded at the slowest pace since May and remained much weaker than its post-crisis trend. This contributed to a renewed slowdown in job creation during August, with payroll numbers rising at the least marked rate since December 2014. Some firms reported that subdued demand conditions and the need to cut costs had led to more cautious staff hiring plans and the non-replacement of leavers."
Comments from Chris Williamson, Chief Business Economist
- "The ongoing lackluster economic growth signaled by the flash PMI suggests GDP growth is failing to accelerate in the third quarter from the weak 1.2% pace seen in the second quarter."
- "Historical comparisons indicate that the PMI is signaling an annualized GDP growth rate of just under 1% in the third quarter, based on the data for July and August."
- "With job creation also waning alongside subdued price pressures (the August PMI is consistent with non-farm payrolls rising by just under 130,000), the survey data will fuel expectations that the Fed will be in no rush to tighten policy again."
- "However, as anecdotal evidence from the survey suggests that business activity is being dampened by uncertainty due to the upcoming presidential election, there's a good chance that the economy will pick up speed again after the vote, leaving a December rate hike on the table."
Mish Comments
I am not a fan of uncertainty, so I discard comment number 4 by Williamson.
Given that the first estimate of third quarter GDP is not out until October 28, well into the 4th quarter I will withhold my personal 3rd quarter prediction for a bit.
But I have stated that I will "take the under" (way under) predictions bantered around by GDPNow and the FRBNY Nowcast (3.4% and 3.0% respectively).
The GDPNnow forecast is from today. The Nowcast update comes out tomorrow. I will take a potshot guess of 2.7% for the Nowcast, with an additional expectation that both forecasts will sink as the quarter goes on.
Expect Lower GDP Report Tomorrow
Given that GDP revisions go on for years, even decades, this is a total crap shoot but I Expect a Downward Revision to 2nd Quarter GDP Tomorrow.
My guess for the second estimate for second quarter GDP is 0.9%. My first guess, much harder, was 0.8%. The Econoday consensus estimate ahead of the report was a whopping 2.6% in a range of 2.2% to 3.4%.
For details, please see GDP Forecast Roundup: GDPNow, Nowcast, Econoday, Goldman, Markit, ZeroHedge, Mish
At that time, I made the only forecast under 1% (I now have company) and I take another shot at below 1% in tomorrow's revision.
Williamson's initial guess was 1.0%. He may very well nail that number tomorrow. This is a crap shoot. Revisions are amazing.
