Look For Small Changes in GDP: Lehman Brothers

Data released since the advance (first) estimate of Q2 GDP has implied stronger growth in the quarter. We look for GDP to be revised up 1.0pp to 2.9 percent q-o-q ar, predict the economists at Lehman Brothers.

The majority of the upward revision should be in trade and inventory, leaving domestic final sales unchanged at 1.3 percent. The trade deficit narrowed considerably more than expected in June, suggesting an even bigger contribution from trade of 3.4pp versus previously reported 2.4pp. The monthly inventory data imply a slightly smaller drop in inventories which should bring the drag to GDP to a still-high 1.7pp.

 
 

Elsewhere, we expect a few small revisions. Most notably, consumption is likely to be revised slightly higher while non-residential investment in structures looks likely to be revised lower.

 
 

A significant contribution from trade was the main driver of growth in the second quarter. However, looking ahead to the next few quarters, we expect the contribution from trade to fade as the dollar strengthens and the global economy weakens.

 
 

In addition, we expect even weaker domestic demand with an outright decline in consumption in the second half of the year.

 
 

Corporate profits, which will also be released with the Q2 GDP revisions, are expected to have declined by 6 percent q-o-q ar, or 6.2 percent y-o-y. Operating earnings were actually up slightly for S&P 500 companies on the quarter, but we believe smaller and non-public firms will keep economy-wide profit growth in negative territory.

 
 

 Initial jobless claims likely fell to 420,000 in the week ending August 22, down from 432,000 in the previous week. The distortion to claims from the recently enacted extension of unemployment insurance benefits appears to be gradually fading. We expect claims to gradually drift down to around 400,000 over the next two to three weeks. Copyright(c) 2008 RealTimeTraders.com, Inc. All Rights Reserved