The week in review
- Markit flash svc. PMI at 58.2, +2.7 m/m
- Markit flash mfg. PMI at 59.2, -1.3 m/m
The week ahead
- 3Q GDP
- 3Q Earnings
Thought of the week
Third-quarter GDP is due out this Thursday and should show a marked deceleration from the first half of the year. While consensus still anticipates modest growth, our models forecast a slight outright decline. GDP growth has been particularly tricky to forecast through the pandemic, but regardless of the exact number, a slowdown should not come as surprise. Both supply shortages and a pause in the reopening of services, due to the Delta variant, weighed on growth last quarter, leading us to revise down our forecast to -0.1% q/q annualized and 4.3% y/y.
For the past year, but particularly over the summer, supply shortages have led to both higher prices and lower real consumer spending. Indeed, we believe that real consumer spending likely grew by less than 2% q/q in 3Q, compared to +12.0% q/q in 2Q. Beneath the hood, the third quarter saw a 21% drop in light vehicle sales – this alone cut our estimates of third-quarter growth by almost three full percentage points. Beyond consumer spending, inventories likely continued to decline, albeit at a slower pace than last quarter. Additionally, dips in business investment (-2.6% q/q) and residential construction (-1.2% q/q) likely further limited GDP’s strength last quarter.
On a more positive note, the slowdown in GDP is likely to be short-lived, as production and consumer spending should ramp up in the months ahead. Consequently, GDP growth could bounce strongly to as high as 8.0% q/q in the fourth quarter and round out 2021 at a very healthy +5.2% y/y. As U.S. growth reaccelerates, investors should expect a boost to cyclical, energy and value stocks.
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Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors.
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