June Manufacturing Slowdown Is Highly Likely

June Manufacturing - Markit Sees 1.4% Q2 GDP Growth

Before getting into June Manufacturing, let's discuss Markit reports. Markit expects Q2 GDP growth to be 1.4%. That’s with PMI data from the first 2.5 months of Q2. Once we get the final June Markit PMI report we will know Markit’s complete estimate. 

Obviously, having about 11 weeks of data in the books and just 2 weeks outstanding means it’s highly likely the final estimate will be very close to 1.4%. I see no reason for economic activity or sentiment to improve in late June. We won’t know if the G-20 summit meetings between Presidents Trump and Xi went well until the end of this week/month.

St. Louis, Atlanta, & NY Fed Estimates

Now let’s look at the regional Fed GDP Nowcasts. The usually optimistic St. Louis Fed Nowcast expects 3.26% growth. Since Q2 2013, this Nowcast has only predicted below 2% growth twice (final estimate). It has predicted above 4% growth three times. 

Markit and Cass Freight reports would be wildly inaccurate if this level of growth was hit. Usually, the advanced GDP report reaffirms what we already knew about the economy because the data comes out late. I’d need to rethink most of what I know if growth ends up 3% or higher.  Q2 growth probably won't be helped by inventory investment and trade the way Q1 growth was helped. Meaning, if Q2 growth comes in high, it won’t be a phony number like Q1.

Also, Atlanta Fed Nowcast is at 2%. Residential construction report knocked it down 0.1%. Its update cadence is based on when reports come out rather than being weekly. That makes more sense because some weeks there isn’t much new data and when new data comes out, this is the first to add it to its model. 

Its next update is on Wednesday in which it will add in the advanced economic indicators and the advanced durable goods report to its estimate. The most important reports this week are new home sales, durable goods orders, pending home sales, and personal income and outlays.

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