What to Expect for the Q3 2016 GDP Report

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This Friday will mark the first real look at third quarter GDP. While this is a backward-looking number, this number is closely watched as it marks the official yardstick that measures the entire economy. The reality is that you can be almost certain that it will also be used by politicians seeking to get elected.

24/7 Wall St. has tracked a slight variation from news sources ahead of the report. These consensus estimates may change ahead of earnings, but there were last seen as follows:

  • Bloomberg sees 2.5% GDP and 1.5% on the price index.
  • Thomson Reuters sees 2.5% GDP and sees 1.4% on the price index.
  • Dow Jones (WSJ) sees 2.5% GDP and 1.3% on the price index.

It is easy to say that even a 2.5% number would be far from robust. What should stand out is that this would actually be the highest rate in five quarters. Consumer spending accounts for close to 70% of GDP on average, and that is expected to be lower than what was seen in the second quarter. Nonresidential investment activity is expected to be a drag in the third quarter.

With weak GDP trends for the last year, there has been some suggestion that perhaps GDP should not be used as the only real measure of the economy. After all, unemployment remains quite low and the consumer seems to keep coming back after each and every pause. One argument has been that the seasonality of the first quarter and subsequent revisions make it harder to use.

While the hope is for a 2.5% gain, the reality is that the last reading above 2% was the 2.3% growth seen in the second quarter of 2015. Sadly, the post-Brexit trend will have started the third quarter off a tad weak in the U.S. and much of the economic data was coming out softer than expected in August and September. It should also be pointed out the actual GDP has trended lower than the consensus estimate for each of the prior five quarters.

The good news is that a few economic readings from last week were ticking higher ahead of the coming report, and Q2-2015 GDP was revised higher. Still, the Federal Reserve in September just predicted low rates and low GDP could last for years.

GDP is effectively the total production value of any quarter. It is made up of the purchases of domestically produced goods and services, and that applies to purchases made by individuals, businesses, government, and even foreign buyers.

Stay tuned.

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