Second Quarter Growth

After the writing of the blog, the ISM manufacturing index was revised for the second time, today.  The new number is 55.4, which closely matches the original expectation.  The newest information does not change Granite Group’s forecast.

This morning we had an interesting error in the first published  ISM manufacturing index (a leading indicator).  The first report showed a slowing to the previous month with a reading of 53.2 but roughly an hour later they revised the number due to an error in the seasonal adjustment and the actual reading came in at 56. The expectation of 55.5 was now a beat and the market turned positive on the news of the reversal.

Most economists expect to see our economy pick up steam this year, but the evidence so far is mixed and that expectation does not seem to be bearing out  in the numbers.  GGA believes that the economy will not hit the 3+ GDP number in the 2nd quarter unless May’s retail sales dramatically improve.  We still have some time to pick up the pace for the rest of the year, but we need better data to support the expected growth.  Even if the economy  picks up in the second half of the year,  it would have to be an enormous number to reach the key 3% growth rate as the fed predicted and make up for the 1% decline from the 1st quarter.  This will be the 5th year in a row the Feds have predicted a better growth rate, and once again GGA believes the economy will be shy of this  goal.

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One thought on “Second Quarter Growth

  1. Mr Himebaugh,

    As you allude to, a tendency toward over-optimistic or ‘reaching’ expectations for economic prospects appears to be a hallmark for the Fed over these years of haunting recovery. As the result of three interwoven developments last year, economic performance succumbed to a winter chill in a more dramatic fashion than would have otherwise been the case. First, the Fed let loose with the tongue and failed to provide proper hand-holding. In May, but more dramatically at the June FOMC meeting, Mr. Bernanke let go the notion that the Fed would likely begin tapering securities purchases by year-end. It is not so much that he offered this notion, but instead, did not give good enough ‘guidance’ for the ‘policy-path’ that was likely to be followed by the Fed. In these trying times, economic have begun to rely heavily on Fed guidance and the lack of that in June created a devastating and lasting impact on rates, growth and psychology. The second development is the inventory build into the 4th quarter of 2013. Weather as a concern for higher forthcoming financing rates or a temporary jump in confidence by corporate managers, inventories were found exceedingly excessive in the backdrop of the third development. Fiscal folly in the form of an inability to present a proper budget and working agreement for debt limits cause both public and private sector pull-back that exacerbated the inventory correction.

    That economic development had run a rather developed mini-cycle over the prior three years with accelerated growth in 2nd and 3rd quarter followed by slippage in the 4th quarter did not put investors and corporate spending and hiring agents at their most generous. The weather impact on top of these conditions was, excuse the expression, little more than ‘icing on the cake’.


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