Economy

GDP vs. FOMC vs. Unemployment and Payrolls

24/7 Wall St. wanted to make an update for its readers about the dual importance of economic reports. It is unemployment that rules the roost in most months, but this week will be an exception. Wednesday morning brings the report on second-quarter gross domestic product (GDP), and then there is the result of the Federal Reserve’s Federal Open Market Committee (FOMC) meeting Wednesday afternoon.

The GDP report is due at 8:30 a.m. Eastern Time on Wednesday morning, and economists are looking for a snapback recovery from the final 2.9% drop in the first quarter. It is that severe drop in the first quarter that makes this quarter so important. Bloomberg has a consensus estimate of 3.1% for GDP in the second quarter. If you back out the consumer prices and inflationary components, the GDP price index gain is expected to be only 2.0%.

24/7 Wall St. has been worried that GDP projections have been too strong, even if Goldman Sachs and Morgan Stanley trimmed their estimates. Durable goods may have saved the report from sagging too far south just last week, but the report is not out of the woods. Several cautionary flags ahead of GDP were as follows:

  • The June Consumer Price Index showed higher inflation, which may artificially boost the number outside of that inflation index in GDP.
  • The last reading on retail sales was not exactly the most GDP-friendly, and some 70% or so of GDP is measured under consumer spending.
  • The Chicago Federal National Activity Index showed decelerating growth around the nation.
  • Corporate earnings are still being driven by buybacks and cost cuts rather than due to systemic revenue growth in the domestic market.
  • Capacity utilization remains stubbornly under the 80% mark.

ALSO READ: 10 Cities Where Wages Are Soaring

Keep in mind that fourth-quarter GDP was up 2.6% on an annualized basis before the weak drop of 2.9% in the first quarter. The economy is recovering, but this rosy 3% plus growth expected by economists just feels as though it is too much when you see how little the underlying revenue growth is from major companies. Here are the July Employment Situation estimates from Bloomberg, as of Wednesday:

  • Unemployment rate 6.1% vs. 6.1% in June
  • Nonfarm payrolls 233,000 vs. 288,000 in June
  • Private sector payrolls 233,000 vs. 262,000 in June
  • Average hourly wages +0.2% vs. +0.2% in June
  • Average workweek 34.5 hours vs. 34.5 hours in June

And also, do not forget that at 2:00 p.m. Eastern Time on Wednesday we will get an FOMC statement on rates and quantitative easing. The projection there is slow and steady on zero percent interest rates and another $10 billion to be tapered in new bond buying on behalf of the Federal Reserve.

ALSO READ: 10 States With the Most Student Debt

Essential Tips for Investing: Sponsored

A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.