- The first revision of the second quarter GDP should show a slight improvement.
- Several surprises on the rise in the US figures indicate a better result.
- On the other hand, the resurgence of the coronavirus in June could lead to worse data.
Confirm the catastrophe, but with a marginal upgrade – that’s what economists expect from revised gross domestic product data for the second quarter. There is reason to think it could go both ways
The brunt of the coronavirus crisis was felt in the three months ending in June – an annualized decline of 32.9% according to the first reading after falling around 5% in the first quarter. The consensus is at a slight upward revision to -32.6% now.
One of the reasons for the improved figures for the last quarter comes from upward revisions to underlying figures. For example, the June retail sales increase was pushed from 7.5% to 8.4% in the latest report.
Another factor to consider is that several other US economic indicators exceed estimates – whether or not they are related to the second trimester. The most recent example is existing home sales which shattered estimates with a jump of 24.7% to 5.86 million annualized in July.
Overall, the The US economy has performed better than the dismal forecasts economists are probably underestimating the impact of a massive fiscal stimulus. Although government support expired at the end of July, the updated figures for the second quarter need improvement.
On the other hand, The coronavirus situation in America started to deteriorate at the end of the quarter – deter buyers from going out and pretty much even before new restrictions are imposed. The second estimate of GDP is based more on figures released for the end of the quarter than on the initial part.
Growing COVID-19 cases in June argue for a worse outcome.
Potential market reactions
If the the optimistic narrative prevails and the annualized GDP is revised upwards – especially above -30% – would support the dollar. A milder crash means a higher base to recover and a reduced need for stimulus from the Federal Reserve.
a striking figure – due to a coronavirus or any other reason – would push the dollar down as expectations of further stimulus from the Fed are expected.
Jerome Powell, Chairman of the Federal Reserve, is due to speak at the virtual Jackson Hole symposium shortly after the figures are released. He will have received the stats when preparing his remarks, and they may have an impact on his tone.
If the GDP statistics are consistent with the estimates, investors can focus on weekly jobless claims which are published at the same time. After falling below one million, initial claims have rebounded above that round figure, which is concerning. Another big surprise in jobless claims – up or down – could steal the spotlight from GDP data.
Economists expect a slight upward revision to the worst GDP ever read and likely base their assessment on previous upward revisions and upside surprises. The resurgence of the virus could cause a downside surprise. The dollar is expected to react to the data against the backdrop of jobless claims and Powell’s speech.