A bevy of better-than-expected economic data pushed up the Federal Reserve Bank of Atlanta’s real-time GDP tracker on Wednesday—but not enough to put it in positive territory.
The Atlanta Fed’s GDPNow assessment of second-quarter economic growth showed Gross Domestic Product falling at a 1.2 percent annual rate once Wednesday’s reports from the U.S. Census Bureau and the National Association of Realtors was incorporated in the nowcasting model.
That’s an improvement from the 1.6 contraction at the last reading nearly two weeks ago.
The gain was led by international trade data for June that showed the trade deficit falling to $98.2 billion and a slight downward revision to May’s deficit from $104.3 billion to $104.0 billion. Economists had expected a reading over $103 billion. The deficit fell as imports declined by 0.5 percent and exports rose 2.5 percent.
Business inventories also contributed to the improvement. Retail inventories rose two percent for the month, better than the 1.6 percent expected. Wholesale inventories were up 1.9 percent.
Durable goods orders rose by a much better than expected 1.9 percent in June, with core capital goods up 0.5 percent. Orders were boosted by a surge in bookings for military aircraft.
The GDPNOW read of the economy, the last before the government’s official estimate of GDP is released on Thursday, has private inventories as the biggest downward contributor to second quarter GDP, taking 2.3 percentage points off GDP. Housing is also seen as subtracting to GDP. Exports, government spending, and consumer spending are seen as making positive contributions. Nonresidential fixed investment—which includes business investment in structures, equipment, and software—is seen as adding a meager 0.09 percent.
The history of GDPNOW shows that it tends to be a little too optimistic about economic growth. On average, it overestimates growth by a few tenths of a percentage point and has frequently missed negative prints altogether. So with GDPNOW still in negative territory after the final reading, it’s a good bet the official measure of economic growth will also show a contraction.
A poll of economists by the Wall Street Journal, however, shows analysts think GDP likely stayed positive in the second quarter, with the median forecast at 0.3 percent.
The economy shrank in the first quarter of this year. The potential for a second consecutive quarterly contraction has given rise to a debate over whether the economy might be in a recession. Two straight quarters of economic contraction is one popular definition of a recession, although many economists say that is too simplistic. The U.S. government and the economics profession relies on the National Bureau of Economic Research to decide when a recession has begun, although its decisions often do not come until long after a recession has begun. In December 2008, for example, the NBER said a recession had begun the prior December.
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