Today, the anticipated number for second quarter US GDP has been adjusted for a second time higher to a surprising 3.70% growth. This beats the July’s estimate of 2.30% by an unforeseen 1.40%, demonstrating a significant revision higher. With the first quarter results requiring double adjustment to hit 0.60%, these positively trending growth metrics may indicate that the US economy is healthy enough to sustain a rate hike earlier than previously thought. Shifting sands in the global financial environment have put September almost out of the question, but an October hike is becoming increasingly likely. While the broader picture translated by these GDP numbers may seem adequate support for a change in policy, digging deeper reveals figures that may reveal weakness in this notion. Specifically, a segment of the growth witnessed today stems from a building in business inventories, which may not mean real sales but rather a façade whereby companies force an unsustainable number of products through their sales channels. One revealing number that points towards this case is the inventories-to-sales ratio, which is currently illustrating recessionary characteristics.
This point may be rendered null by a positive revelation in today’s numbers: exports. Exports were able to grow though conditions were not favorable. The strong US dollar and high personal consumption numbers were not enough to stop exports from increasing and imports from decreasing, which is another strong sign of a healthy economy ready to absorb lightened policy measures. The reaction to this news was felt strongly in the dollar, which bounded upwards after a brief dry spell due to an unclear future for liftoff time. This marks the third session in a row that the dollar has posted gains, a good sign considering the tough spot the currency was in during the last few months. Moving with the tide of a strong dollar, the Swiss Franc and precious metals have been swept downward. As signs continue to appear asserting clues of a strong economy, the Federal Reserve will have to acknowledge or give astute reasons why a rate hike isn’t forthcoming.
US Beats Growth Estimates
Market Trends - 27/08/2015