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Our ReForecast of 2Q2014 GDP Growth Remains Steady at 2.9%

image10 300x165 Our ReForecast of 2Q2014 GDP Growth Remains Steady at 2.9%

Forecast of 2Q2014 GDP Comes in at 2.9%

Our 1st ReForecast of 2Q2014 comes in at 2.9%. We believe that the US Economy has been slowing down during June, but not enough to move our ReForecast from the original estimate. At least, that is what our model predicts. We will see!

We expect the 2nd Estimate and the Final Estimate to be reduced to somewhere around 2.5% growth, which will not be reduced as much as the 1% adjusted downturn in the Final Estimate of 1Q2014. I wouldn’t be surprised that the Advance Estimate comes in lower than our 2Q2014 estimate. We decided to rate slight upturns and downturns NEUTRAL for June, simply because 1-month downturn does not make a trend. So, our ReForecast was heavily weighted towards neutral. There was not enough data available to signal an upward or downward trend.

PERSONAL CONSUMPTION EXPENSES continues to show signs of sluggishness. Since June’s data has not yet been announced, we decided to maintain its negative outlook for 2Q2014 on a real basis (inflation-adjusted).

image11 300x172 Our ReForecast of 2Q2014 GDP Growth Remains Steady at 2.9%

Personal Consumption Expenses (PCE) comes in at 2%

GROSS PRIVATE DOMESTIC INVESTMENT should recover somewhat in 2Q2014, but we do have some concern about the potential peak of the current Business Cycle. Corporate Profits fell in 4Q2014, some say strictly for tax reasons. It is true that accounting decisions are made at year-end to reduce corporate tax liability, but I am not sure that profits fell strictly for that reason alone. Since 1Q2014 Corporate Profits are not fully known, we are forecasting a neutral rating for June.

image12 300x169 Our ReForecast of 2Q2014 GDP Growth Remains Steady at 2.9%

Gross Private Domestic Investment Comes in at a 1% Contribution

We believe that the contribution to 2Q2014 GDP by GOVERNMENT EXPENSES and NET EXPORTS will essentially offset each other, except that we believe the growth in Imports will continue to exceed the growth in Exports, negatively impacting GDP. We expect a small contraction in their combined contribution to GDP.

image13 300x173 Our ReForecast of 2Q2014 GDP Growth Remains Steady at 2.9%

Congress will keep Government Expenses at Bay while Imports continue to accelerate Faster Than Exports

The announcement tomorrow of the Advance Estimate of 2Q2014 GDP will be an interesting one.

us-economy-exposed-debt-crisis

Tweet Peeks at 2Q2014 GDP for W/E 07-25-2014

@KeithEOuellette: We had rather a neutral week of economic news, but what we had slanted more positive during the past week. Positive news has won the race in June after being split evenly for April and May. Positive and Negative news items came in at 40% to 30% respectively; while the other 30% remained neutral in the Final Tally for 2Q2014. The key is to align the economic news items with the weighted average to determine their impact on GDP. We have done just that in the initial estimate of GDP growth, utilizing our simple rating model.
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You can find our First Forecast of the estimated GDP Growth Rate by clicking HERE. We will have our Final Forecast of 2Q2014 GDP Growth published before July 30th when the Advance Estimate is scheduled to be announced.

For an explanation of the ratings, please refer to the post describing the Rating System.
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FINAL SUMMARY OF 2Q2014 RATINGS

POSITIVE = 42
NEUTRAL = 32
NEGATIVE = 31
As of July 25, 2014

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  • The Federal Reserve’s Beige Book, a summary of economic activity by district, continues to show expansion in July. http://t.co/zi2ps1HJdE
    RATING = 2
  • ***************

  • Michigan Consumer Sentiment preliminary estimate comes in at 81.3, but is still above the 80 index level. http://t.co/8JG3GK8gqN
    RATING = 1
  • ***************

  • Yellen’s opening remarks to House panel identical to July 15 testimony http://t.co/AuxZjOx083
    RATING = 1
  • ***************

  • The Chicago Fed’s National Activity Index decelerated in June, with 2 of the 4 major indicators declining slightly. http://t.co/MSDx0RkJt0
    RATING = 2
  • ***************

  • June Coincident Indicator Review indicates that growth is relatively flat, but is still growing around 3% per year. http://t.co/XVTnjPN6qv
    RATING = 1
  • ***************

  • Real Earnings are unchanged from May to June, not great news for those who want the US Economy to grow and not stall. http://t.co/Q0HJbjyk8m
    RATING = 1
  • ***************

  • A bit of good news on the Home Front. Existing Home Sales improve in June, probably from investors trying to profit. http://t.co/UfvbzednCu
    RATING = 2
  • ***************

  • New Home Sales for June fell 8.1% and last month’s double digit increase was adjusted down to 4% for May. Not good! http://t.co/0P6io7ZHzL
    RATING = <2>
  • ***************

  • June Durable Goods show mixed results based on EconIntersect’s 3-mo analysis, which deteriorated despite 0.7% growth. http://t.co/Ei0pm35Cp6
    RATING = 1
  • ***************
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The Atlanta Fed’s Research of Part-Time Employment by Industry

image7 300x177 The Atlanta Feds Research of Part Time Employment by Industry

The Percentage of Part-Time Employment by Industry

I love this lollipop graphic, illustrating PTER (part-time employment taken for economic reasons) and PTNER (part-time employment taken for non-economic reasons). The “lollipop” chart below sheds some light on the diversity of the share of employment that is PTER and PTNER across industries. “The “lolly” end of the lollipop denotes the average mix of employment that is PTER and PTNER in 2013 within each industry, and the size of the lolly represents the size of the industry. The bottom of the “stem” of each lollipop is the average PTER/PTNER mix in 2007. The red square lollipop is the percent of all employment that is PTER and PTNER for the United States as a whole.” Clearly, you can see that there is a wide range of fluctuations and it varies by industry. The authors identify their interpretation of the data HERE!

A lot of attention is being given to the U-6 Unemployment Rate, which includes those part-time employees who desire full-time employment, among others, but cannot find it! But there are more measures of unemployment published by the BLS. They are summarized below illustrating the trends in each category.

image8 300x124 The Atlanta Feds Research of Part Time Employment by Industry

Alternative Measures of Labor Underutilization

So, what is the true unemployment rate? . . . 6% or 12% or somewhere in between. The confusion lies in how the data is collected. Unfortunately, the traditional unemployment rate of 6.1% is not real. In fact, a 12% unemployment rate is more realistic, but it is based on estimates.

An alternative analysis of Full-Time and Part-Time employment is done masterfully by Doug Short’s visual graphics of the actual data, at least what we know is real, and not guesstimated. His thorough analysis of the Part-Time Employment Ratio provided some real insight about the effects of ObamaCare. Despite the repeated attacks by the Conservatives, he states that “With regard to Obamacare and part-time employment, as I’ve repeatedly emphasized: The surge in part-time employment was triggered by the recession, not by the Affordable Care Act, as the next chart clearly illustrates.

image9 300x218 The Atlanta Feds Research of Part Time Employment by Industry

Part-Time Employment Ages 25-64

At some point in the future, the part-time employment numbers may show the effects of ObamaCare, especially if the law extends to all businesses regardless of size. Is this the Plan of Liberals? The Conservatives are counting on a big win in the 2014 Mid-Term elections, so they can repeal the Affordable Care Act in 2015. Whoever wins the seats in Congress, It has become clear to me that the employment situation is much more complicated than just placing blame on a single law, and that is The Real Truth!

Government Spending and Net Exports – 2Q2014 Trends

image6 300x183 Government Spending and Net Exports   2Q2014 Trends

Government Spending is projected to contribute enough to GDP to offset Net Exports

The numbers in Government Expenditures and Net Exports are not expected to materially impact GDP, but the higher growth rate in Imports may push their combined contributions into the red. At the moment, we will stick with our offsetting forecast of 0.0% combined contribution to 2Q2014 GDP.

The Mid-Term election year is keeping Government Spending bills stalled in Congress. We do not expect many changes, plus or minus, in government spending levels through the balance of 2014. The US is still importing more goods and services, than they are exporting, which widens the trade deficit. You can expect a combined future drain on GDP in subsequent quarters.

This is the 3rd and final Post on our estimated 2Q2014 Change in GDP before the Advance Estimate is published on July 30th. We will provide you with our last projection sometime next week, so we want to give you more of a “Sneek” Peek at June’s economic activity.

The Big 4 Leading Indicators have seen positive growth from January through May, after seeing a contraction in November and December. So, we expect June economic activity to be consistent with earlier months of 2014. However, a glimpse of the Chicago Feds National Activity Index illustrates that the US economy slowed in June. We do not believe that it will affect our model’s 2.9% forecast for 2Q2014. Here is a quick summary of CFNAI’s June activity:

  1. The broad Employment indicator has been growing these last few months,
  2. Production-related indicators slowed in June,
  3. Personal Consumption and Housing continues to be the significantly underperforming category.

It will be interesting to see Doug Short’s update to the Big 4 Leading Indicators for June, but here is a link to his July 3rd update. We have seen the battle of the Positive and Negative Twitter posts fluctuate this past month and believe it may swing to Negative this week, bringing them back to even for this quarter. We will see!

Tweet Peeks at 2Q2014 GDP for W/E 07-18-2014

@KeithEOuellette: We had rather a slow week of economic news, but what we had slanted positive during the past week. Positive and Negative news items continue to be split somewhat evenly at 39% to 35% respectively, with the range widening over the last 2-weeks; while the other 26% remained neutral. The key is to align the economic news items with the weighted average to determine their impact on GDP. We have done just that in the initial estimate of GDP growth, utilizing our simple rating model.
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You can find our First Forecast of the estimated GDP Growth Rate by clicking HERE. For an explanation of the ratings, please refer to the post describing the Rating System.
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TO DATE SUMMARY OF 2Q2014 RATINGS

POSITIVE = 39
NEUTRAL = 27
NEGATIVE = 35
As of July 18, 2014

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  • C. Kimble charted Consumer Confidence levels with Velocity of M2. Spending appears to be trending down in the future. http://t.co/dxRuS8OhLd
    RATING = <2>
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  • The future of the Mortgage Industry with the looming risk of accelerating foreclosures is outlined in this post. http://t.co/OOC0YdwYko
    RATING = 1
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  • Retail Sales for June came in up 0.2%, but still up between 4-5% Year-Ovr-Year for the month and 3-month rolling avg. http://t.co/EkeGmijgoJ
    RATING = 2
  • ***************

  • May Business Inventories & Sales come in with mixed results per Econintersect’s analysis of Final Business Sales. http://t.co/4GKnVHndQq
    RATING = 1
  • ***************

  • June Industrial Production comes in low at 0.2% growth mo over mo, but is up 4.3% yr over yr, unchanged from last mo. http://t.co/opqyyOw4hC
    RATING = 2
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  • June’s Leading Economic Index marginally increased by 0.3% growth to 102.2, but slowed from May’s growth of 0.7%. http://t.co/a9Res50TYe
    RATING = 2
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