The jobs number for June was much better than expected but not good enough to push the Atlanta Fed’s real-time GDP tracker back into positive territory.
The Department of Labor said the U.S. economy added 372,000 jobs in the month of June, far better than the 250,000 expected. Wholesaler inventories grew by 1.8 percent in May, slightly lower than the initial estimate of two percent.
The growth of employment and inventories was not enough to overcome the disappointing news in the weeks preceding it. The real-time GDP tracker run by the Federal Reserve, called GDPNOW, fell into negative territory weeks ago and remains there even now. On Friday afternoon, it registered a 1.2 percent contraction in the economy in the second quarter.
If that turns out to be right, this would be the second consecutive quarterly contraction. In the minds of many, that constitutes a recession—even if the official arbiters of recessions at the National Bureau of Economic Research may not declare it to be a recession because unemployment remains so low.
The odds are that the Atlanta Fed’s tracker will not rise into positive territory. There are only three more readings left before the official read of second quarter GDP is published on July 28th.
The first will come a week from now and take into account reports on retail sales and inventories, industrial production, and import and export prices. None of those is likely to give much of a boost as retail sales seem to be weakening and big stores have reported efforts to shrink unwanted inventories, manufacturing seems to have slipped into contraction, and imports are likely to surge as China’s covid lockdowns were lifted.
The second will arrive on July 19th, when we get housing starts. By all accounts, housing has been softening due to higher interest rates and inflation in building materials and wages. Probably not a big boost from that.
On July 27th, we’ll get the final read. It will include figures from estimates of manufacturing in June, likely to show evidence of the contraction that has shown up in surveys. The final data source that will inform that GDPNOW estimate will be the Advance Economic Indicators, which are an amalgam of what we learned from inventory and trade data.
In short, GDPNOW is more likely to fall than rise. Big upside surprises in the economic data could turn it around but that looks unlikely.
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 if GDPNOW is still in negative territory after the final reading this month, it’s a good bet the official measure of economic growth will also show a contraction.
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