Q2 GDP Expectations Continue To Climb

Motor Vehicle Sales

Motor vehicle sales are a big portion of consumer spending which goes into GDP. I have been expecting 2018 motor vehicle sales to be weak, but I expect a pickup in GDP growth in Q2. As you can see in the chart below, total vehicle sales were 16.9 million which missed estimates for 17.1 million and was below last month’s 17.2 million in sales. It appears vehicle sales have plateaued. Domestic made vehicle sales were 13 million which beat the consensus estimate of 12.8 million.

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Vehicle sales were only up 0.1% in dollar terms in April. As I discussed often in 2016 and 2017, the incentive growth was unsustainable. We are now seeing weaker results as incentive growth has been in the low single digits. More recently, the industry had to deal with the overhang that came from the burst in auto sales after the hurricanes last fall. I expect total sales to stay around where they are now until the next recession. It’s disappointing to see two down months in a row after the uptick in March.

Strong ISM Manufaturing Report

With the strong regional Fed manufacturing reports in May, I was very optimistic about the ISM manufacturing report. Relative to the extremely hot regional Fed reports, this ISM report disappointed me slightly, but it was still a great report. As you can see from the chart below, the PMI was 58.7 which beat the consensus estimate for 58.5. It didn’t come close to beating the highest estimate like many of the regional Fed reports did. The regional Fed reports are very volatile. I trust the ISM Manufacturing report more than them, but even the ISM reports have been too optimistic compared to the hard data reports in the past few quarters because they have small sample sizes like the regional Fed reports.

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This report is the same as the 12 month average and was up 1.4 points from last month. It is consistent with 4.8% GDP growth which is exactly the same as the Atlanta Fed Nowcast as I’ll get to later. If manufacturing was the dominant sector in the economy, GDP growth might be that high. Since June 2009, it has been consistent with 2.6% growth.

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