Early Q3 GDP Nowcasts Point To A Pickup In Economic Growth

Initial estimates for third-quarter GDP point to a rebound in growth following the softer-than-expected gain in Q2, based on the median of nowcasts compiled by The Capital Spectator.

The current estimate points to a real annualized 2.7% increase in output, according to the median nowcast. If confirmed when the official numbers are published, the gain would mark a solid improvement over Q2’s modest 1.5% rise.

To state the obvious, the nowcast should be viewed cautiously this early in the quarter. The Bureau of Economic Analysis is scheduled to publish its preliminary Q3 GDP report on Oct. 29 and, to cite the standard caveat, a lot can happen between now and then. All the more so given the unsettled conflict in the Middle East and the resumption of US tariffs. Estimating how these risk factors could influence economic activity is precarious at best. Add in uncertainty about inflation’s path and it’s clear that confidence surrounding economic analysis remains a day-to-day affair.

The early numbers for Q3, however, look encouraging. Indeed, all of the nowcasts in the chart above are printing above the 1.5% advance in Q2. For the moment, at least, there’s a reasonable case for expecting that growth will pick up in the current quarter.

One source of optimism is stronger business activity in July, based on PMI survey data published by S&P Global Market Intelligence. Polling indicates “an encouraging acceleration in economic growth at the start of the third quarter,” notes Chris Williamson, chief business economist at the consultancy.

Lower oil prices helped, thanks to reduced hostilities in the Middle East. The renewed fighting in recent weeks suggests the relative calm is precarious, but the relative calm appears to be holding.

But as Williamson points out, some of the PMI-based rebound in July is linked to a one-time pop from the World Cup soccer games. He says “that the biggest improvement in demand in July was reported among consumer-facing service providers, spending on which surged at a rate not seen for over four years

linked to the FIFA World Cup and US Independence Day events.” The weeks ahead will stress-test the durability of the initial Q3 numbers, but for the moment the early estimates suggest that softer growth in the previous quarter is picking up.