- Real trade balance widens from -46bn in May to -54bn in June
- Exports down 1.3% but imports up 3%
- Even though civilian aircraft imports up 53% (after -49% prior month), imports up across the board
- Consumer goods imports up 7.8% and capital goods up 1.2%
- Even though the import data suggests final demand is holding up well, the final Q2 GDP print wont be pretty
- Wholesale inventory data yesterday and trade data today were worse than initial BEA estimates for Q2 GDP
- Headline GDP likely to be revised from initial estimate of 2.4% to somewhere in 1-1.5%. But final private demand may actually be revised up.
Yes, Q2 GDP to be revised down, but it’s been down. Q2 is history. Corporate earnings were based on the actual numbers- sales, costs, profits.
In other words, we know what the S&P were able to earn even with very modest headline GDP growth.
The higher final demand is also at least sustainable.
The relatively large and ongoing fiscal deficit that added that much income and savings to the non govt sectors allowed for the higher final demand AND higher savings.
While the QE from the Fed does nothing beyond causing term rates to be marginally lower than other wise, it does add some support for asset prices via implied discount rates.
As discussed earlier this year, markets are figuring out that the economy is flying without a net. All the Fed can do is alter interest rates which, with each passing day since the recession began, has been shown to not be able to support output and employment, or even prices and lending. (Just like Japan has shown for going on 20 years.)
And a Congress and Administration that thinks it’s run out of money and is dependent on borrowing and leaving the bill to our grand children to be able to spend is unlikely to provide meaningful fiscal adjustments to support aggregate demand.
So we muddle through with unthinkably high levels of unemployment and modest GDP growth waiting for an increase in private sector demand to kick in via credit expansion from the usual channels- cars and housing.
The risk to growth is now primarily proactive fiscal consolidation- spending cuts and/or tax hikes- in advance of private sector credit expansion. So far I haven’t seen anything meaningful enough to be of consequence. But the anti deficit rhetoric is certainly there, counterbalanced to some degree by the call for jobs.
So it remains a pretty good equity environment but a very ugly political environment.