Sunday, August 9, 2015

Atlanta Fed GDPNow Model Starts Off Predicting US 2015 Third Quarter GDP at 1.0%, Implications for Canada and Ontario 2015 Third Quarter GDP

The Atlanta Fed's GDPNow model for predicting US GDP just made their first prediction for US third quarter GDP on August 6th. Interestingly they predicted only growth of 1.0% versus consensus of 3.0%. Their reason inventories:

"The model projects that lower inventory investment will subtract 1.7 percentage points from third quarter real GDP growth. Real GDP grew 2.3 percent in the second quarter according to the advance estimate from the U.S. Bureau of Economic Analysis."

Inventories and GDP is a funny thing, so who knows what will happen. But in the first quarter when everyone was predicting decent growth for the US, the Atlanta Fed model was predicting very weak performance, which turned out to be true.

What's that mean for Canada? Many commentators are predicting much higher growth in the third and fourth quarters for Canada after possibly two negative quarters for the first half. That's likely predicated on stronger US GDP as well. If the US does in fact only grow by 1.0% that's not going to be good for Canadian GDP, weak dollar or not. For Ontario especially, which depends on the US for exports, that's not good either. Ontario had GDP growth of -0.2% annualized in the first quarter of 2015 and the second quarter isn't looking so great either. If US growth is weak in the third quarter, Ontario's full year GDP will likely be terrible and way off the Ontario budget's prediction of 2.7% for 2015. 

July's job numbers for Canada wasn't remarkable either at 6K and change, which doesn't bode well for strong growth in the third quarter either.

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