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Markets expect the economy grew by 2.4 percent q/q (saar) in the second quarter (data due Friday). The ‘slowdown’ in the first quarter was nothing of the sort; simply random noise or seasonal adjustment quirks that have made look first quarter output look dubious in 3 or 4 of the past 5 years.
Squelch the noise and one sees that even the lower / consensus estimate of 2.4 percent sequential growth would leave on-year growth (that over the past 4 quarters) at 2.4 percent as well – solid indeed considering that the economy’s average growth has been 2.1 percent since December 10. Looking into the components, consumption will continue to drive the boat, with a 3 percent expansion likely, DBS Bank reported.
Consumption has run 50 percent faster than GDP overall for the past 4 years and the PCE will continue to drive things in Q2. Housing is also running very strongly but after the 12.9 percent expansion last quarter one should expect a much softer reading for Q2 on Friday.
"We’ve pencilled in 4 percent. The same is true for business investment, which finally pulled itself out of bed in Q1. The 10.1 percent growth recorded then should drop back close to zero. A small subtraction from net exports and a small rise in stocks (which could be much bigger) leave overall growth at 2.6 percent q/q (saar) by our reckoning, which still leaves on-year (y/y) growth at 2.4 percent," the report said.
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