The headline Q2 GDP number looks like quite a big miss as +6.5% q/q ann. versus the +8.5% mkt median. And Q1 was revised down a touch too. But the underlying picture still looks pretty robust in reality. In fact, the bulk of the miss could be attributed to the ongoing disruptions that Covid continues to generate, specifically in terms of the further sharp decline we saw in inventories, which knocked 1.1% pts from that 6.5% rate. Government spending was also notably weak (its contribution knocking a further -0.3% pts off the headline), particularly government investment.
While the decline in first quarter GDP (-4.8% q/q ann.) was not unexpected, the outturn still doesn’t represent the full scale of the economic contraction. The collection periods of the sample data are focused in the early part of the survey period and the assumptions the models make for the balance of the period rely heavily on these inputs.
UK economy continued to slow in November. According to the monthly GDP estimate the economy shrank by -0.3% m/m. Although the smoothed 3/3m rate still showed a +0.1% rise, this was the slowest pace since fears of a hard Brexit dominated thinking back in the summer and on a y/y basis the +0.6% recorded was the weakest since back in the days of the Eurozone debt crisis (June 2012 to be exact).
First glance shows positive surprises for Wednesday’s data releases. First, we had the October ADP report which recorded a 125k jobs gain versus the 100k consensus. But there was a decent downward revision to September (-42k) and the underlying rate of growth continues to decelerate.
While China’s 3Q GDP number was a little lower than expectations at 6.0% y/y the monthly production and activity series for September all improved. Retail sales growth picked up to 7.8% y/y from 7.5% while industrial activity rebounded to 5.8% y/y from 4.4% in August. Investment was perhaps the one area of disappointment, growth slowing to 5.4% y/y despite a further modest pick up on the State Owned side.
UK activity data for May somewhat better than expected, but this is largely due to volatility as industry juggled with the initial March Brexit data and resulting slide in production in April, notably the pre-planned auto sector shutdowns. The underlying picture is still one of weakening activity
The final reading of US first quarter growth, at first glance, paints a positive picture. The quarterly pace of expansion came in at 3.1% ann. with y/y growth hitting 3.2%, the highest since Q1 2015. But the structure shows clear evidence of the cross currents at work with an upward revision to the inventories build and a relatively better gain from net exports offsetting a moderation of domestic consumption growth.
First quarter real Japanese GDP registered a surprise expansion. But digging below the surface and there isn’t that much to get excited about. Underlying demand remains weak both in terms of household spending and government. It was left to net exports – where imports declined at a faster rate than weak exports – and a further and faster inventory build to provide the statistical boost.
March output data was strong on the manufacturing side, amid inventory building ahead of the (since extended) end-March Brexit deadline. Construction and services ended the quarter on a weak note, leading to an overall dip in GDP in the final month of Q1.
Strong advance Q1 GDP numbers, but the devil is in the detail with a further big inventory build and a particularly strong contribution in net trade both driving up the q/q ann. growth rate to 3.2%, easily beating forecasts. The y/y rate also hit 3.2%, the highest since Q2 2015.
Trade and output data surprising to the upside, boosted by what looks to be activity as firms seek to get ahead of the curve pending the previously expected March 29 Brexit data – which the March PMIs also showed amid a record increase in inventories (and not just compared to UK history, but globally).
Final US GDP numbers for Q4 revised down a little bit but not that much of a change in year-on-year terms, with growth overall running a shade below 3% which isn’t bad. Government was weak but investment still looks strong and inventory build also helped headline. In fact, investment looks too strong given how corporate profits have performed. Ditto for employment vs. profits.