- Remember that they call it the dismal science for a reason, when you recall how gloomy the forecasts were for second quarter real GDP growth. Some forecasters warned about the possibility of a negative quarter. The advance (first) estimate of Q2 real GDP growth came in better than expected at 1.7 percent. That estimate was based on incomplete U.S. international trade data for the quarter. Now, with the better-than-expected trade data for June, we may see a sizeable upward revision to Q2 real GDP data when the preliminary (second) estimate is released on August 29th. The U.S. international trade gap narrowed significantly in June to -$34.2 billion. As long as other revisions do not completely offset the June trade data, and that is unlikely, Q2 real GDP growth will be revised upward, to above 2.0 percent, possibly to as high as 2.7 percent.
- As often happens, the Bureau of Labor Statistics July employment report confounded expectations in both directions. The payroll job gain of 162,000 for the month was weaker than expected given solid Q2 job gains and a strong July ADP employment report. However, the unemployment rate came down more than expected, dropping two tenths to 7.4 percent. Average hourly earnings dipped slightly as did the hours of the average workweek. If it were not for the Federal Reserve calibrating policy according to the unemployment rate, the July labor data would be regarded as weak. However, the Fed IS setting policy according to the unemployment rate, so the larger-than-expected drop in the unemployment rate to 7.4 percent remains consistent with a mid-September date for the beginning of the “calibration” phase of Fed asset purchases. The mixed July data puts even more weight on the August jobs numbers which will be published by the BLS on September 6, 11 days before the start of the September 17/18 FOMC meeting.
- These are interesting days at the Federal Reserve. Market expectations continue to center on a September 18th announcement of the beginning of the end of QE3; however, some fed watchers favor the next FOMC meeting at the end of October as the launch date. Favorable U.S. economic data at the start of the third quarter appear to be consistent with the September expectation. So far, FOMC members have not torpedoed that (possible) canard. President Obama has narrowed his choice for the next Chairman of the Board of Governors of the Federal Reserve to Janet Yellen, Larry Summers and Donald Kohn. Summers appears to be a favorite of the White House, while Yellen has support among Senate Democrats. Summers may be expected to dial down QE3 a little faster than Yellen. Donald Kohn would also be expected to wind down QE3 as outlined by Chairman Bernanke.
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