Flash Update
Major Revisions to Housing, Retail Sales and Production Promise Lower GDP Growth
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The March SGS Newsletter will be published in the next several days, with timing complicated a bit by travel. Its posting will be advised by e-mail. Since the newsletter will not be out before the GDP's "final" release for the fourth quarter, on Thursday, March 29th, this update is intended to review the outlook for the GDP revision in light of recent revisions to underlying data. -- Best wishes to all, John Williams
Where the annualized quarterly fourth-quarter GDP inflation-adjusted growth rate revised from 3.5% in its "advance" reporting, to 2.2% in its "preliminary" reporting, further downward revision is likely in Thursday's "final" reporting, due to significant revisions in underlying economic series. Usually, third GDP revision is just statistical noise, and the markets appear to be expecting no net revision at present.
Yesterday's revisions to new home sales in the fourth quarter were extraordinarily large. What had been annualized quarterly growth of 13.5% versus the third quarter, revised to a 2.6% contraction. While currently reported fourth-quarter GDP already shows a contraction in residential investment, these numbers suggest an even greater contraction is likely to be reported in the upcoming GDP revision.
As noted in last week's Flash Update, the most recent monthly revisions to fourth-quarter industrial production left that quarter's seasonally-adjusted annualized quarterly contraction at 1.25%, a deeper tumble than the 0.78% reported the prior month.
Further complicating available data, March 29th sees the publication of the annual benchmark revision to retail sales. Historical sales likely will be revised to lower levels than previously reported and would be available for inclusion in the upcoming GDP revision.
While the impact of the above mentioned series on GDP reporting could be delayed until the mid-year annual GDP benchmark revision, and while this is the most heavily politicized of the major economic series, odds favor some of effects of the underlying revisions to bring in a noticeable downside revision to the fourth-quarter GDP growth rate, rather than the no revision looked for by consensus forecasts. When the annual GDP benchmark revision is published, the quarterly GDP could be reported in contraction.
Details on the GDP reporting will follow in the newsletter.
March's "Shadow Government Statistics" monthly newsletter will be posted by early next week at the latest.