US GDP Revision Diverges From Data

Weekly Report - 28/05/2017

Housing Sector and Durable Goods Woes Overshadow Growth Acceleration


A higher revised first quarter GDP figure delivered on Friday was among the few optimistic notes that came from US economic data last week after new and existing home sales figures disappointed estimates while durable goods orders continued their recent retreat.  The dollar sunk throughout the week, weighed on by less hawkish FOMC Meeting Minutes and deteriorating fundamentals.

Last Week

Financial markets were dominated by volatility across the board last week. Starting out with US economy, the second estimate of first quarter GDP came in stronger than originally anticipated, printing at 1.20% compared to 0.70% reported a month earlier.  However, just as US equity benchmarks reached new records, momentum in the housing sector displayed deterioration in new and existing home sales, stoking concerns about the outlook.  While FOMC Meeting Minutes viewed slow growth as transitory, less hawkish minutes indicated that the three rate hikes projected for the year may not materialize.

Moving to Europe, first quarter GDP in the UK was revised lower from the advance reading to 0.20% quarterly growth while the annualized pace of increase slowed to 2.00%.  German GDP matched an earlier estimate for the same period, with optimism arriving after a stronger-than-anticipated preliminary manufacturing PMI.  Shifting gears, Japanese officials were the recipients of positive news following the increase in both headline and core consumer inflation on an annualized basis.  To cap off the week, OPEC members decided to extend oil production cuts by 9-months.  Nevertheless, oil prices sank dramatically after markets digested the time frame as not long enough to make a difference in overflowing stockpiles, especially with US production continuing to climb.


The Week Ahead

There is an abundance of data due from across the globe in the coming week, with a major emphasis on manufacturing fundamentals.  Chinese manufacturing figures will be unveiled by the government and Markit, with both figures expect to remain in expansionary territory despite an ongoing deceleration.  PMI data for the aggregate Euro Area is expected to remain on hold at 57.0 with no change anticipated for Germany and France while UK and Italian figures retreat modestly.  More important are the upcoming unemployment and inflation figures for the Euro Area, with consumer price growth expected to slow to 1.50% on a headline basis while the jobless rate trickles lower to 9.40%.

While US manufacturing data will also be announced, the main reports will be focused on inflation and employment.  Any further retreat in PCE inflation could prevent the Federal Reserve from raising rates during the June meeting.  The week will also end with nonfarm payrolls report and unemployment rate which is forecast to hold fast at 4.40%.  Apart from these important development, the S&P Case-Shiller home price index will be revealed, potentially displaying a decline housing price growth.  To cap off the week, Japan is set to release household spending figures which are expected to show notable improvements for the month of April.


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