U.S. GDP front and centre
The U.S. economy slipped through the first quarter without apparently setting the stage for a recession but can it do that again in the second quarter?
Economists are betting it can, thanks to the robust exports sector and consumer spending spawned by the U.S. government's fiscal stimulus package.
What are the expectations?
The markets will be watching closely when the second-quarter gross domestic product report is released today. They expect the report will show the U.S. economy grew by 2.3 per cent at an annualized rate in the second quarter, which is more than double the lacklustre 1 per cent of the first quarter.
David Rosenberg, North American economist at Merrill Lynch & Co., doesn't share the upbeat view of the second-quarter report. In fact, he believes the actual number will come in at 1.6 per cent, well below consensus, and that by doing so, it could disappoint the markets.
The difference between his forecast and the consensus arises from his expectation that imports strengthened late in the quarter.
He believes that the U.S. is already in a recession, as do many investors. A survey of U.S. individual investors done by the global asset management firm Schroders PLC released this week showed that 62 per cent of the respondents agree that the United States has sunk into a recession. (Even so, almost all anticipated a positive rate of return on their investments over the next 12 months.)
"It's time to reiterate that while it is usual to have GDP go negative in a recession, recessions quite often start with GDP growth still slightly positive," Mr. Rosenberg said in a report this week.
A case in point happened in 2001, he noted. The first-quarter GDP that year was originally reported as showing a gain of 1.2 per cent but it was subsequently revised to show a decline of 0.5 per cent and the recession had already begun.
Also today, the Bureau of Economic Analysis issues its annual GDP revisions for the period between the first quarter of 2005 and the first quarter of 2008.
"There is no guarantee what direction the revisions will take," Mr. Rosenberg said. "But we note that in the past five revisions, there has always been a downgrade of GDP," he added.
