GDPNow at 4.7% on the back of bullish ISM manufacturing data

Quick note here to update you on some of the macro data

I continue to be bullish on the near-term US economy. As I wrote this morning, the Q2 and Q3 GDP numbers are both showing more than 4% growth. And with the ISM Manufacturing data released today, the Q3 GDPNow tracker has pushed up to 4.7% from 4.1%.

Here’s how the Atlanta Fed explains the change:

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2018 is 4.7 percent on September 4, up from 4.1 percent on August 30… after this morning’s construction spending report from the U.S. Census Bureau and this morning’s Manufacturing ISM Report On Business from the Institute for Supply Management.

The consensus numbers for Q3 are still at 3.1%.

GDPNow 2018-09-04

Source: ISM

Why this matters: if GDP growth data continue to surprise to the upside, it makes a December hike a lock. The last Q2 estimate comes out later this month and the first Q3 estimate will be out near the end of October. That will give the Fed over a month to jawbone the market toward its ultimate decision.

Deeper dive: In terms of what the ISM data say, note the figures highlighted in yellow in the graphic below.

ISM Manufacturing August 2018

Source: ISM

What this tells you is that forward looking data in the manufacturing sector are bullish. So, the trend is up. And again this gives the Fed a green light to raise two more times this year. Notice the prices paid component as the outlier to the upside. It continues to be a problem signalling end of cycle inflationary pressure. I think these numbers will come down though.

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