- The second release of US GDP is expected to be revised down.
- The US Economic Activity table points to an upside surprise in the short term
- FXStreet's proprietary tools point to a disappointment that may weigh on the dollar.
With the influx of news around the US-Sino trade spat, it is easy to forget about what the US economy is doing – yet investors cannot ignore Gross Domestic Product numbers – the broadest overview of the economy.
The first release of US GDP for the second quarter showed an annualized growth rate of 2.1% – outperforming other developed economies. According to the economic calendar, the second release is forecast to show a minor downward revision to 2.0% when the data is due out on Thursday.
The reaction in markets is straightforward – the greenback is set to rise if growth remains at 2.1% or is revised higher. And if GDP is downgraded below 1.9% – the dollar may lose ground.
What are the chances of a negative or a positive surprise?
FXStreet's Surprise Index pointing down
FXStreet Surprise Index quantifies, in terms of standard deviations of data surprises (actual releases vs. survey median), the extent to which economic indicators exceed or fall short of consensus estimates.
Examining US economic indicators since 2011, the trend is clearly down. The indicator is capped by a downtrend that accompanies it since it peaked in mid-2018. Moreover, it broke below downtrend support a few months ago and failed in its attempt to recapture that level. Also, the index has been unable to recover in recent weeks.
When zooming in and looking into economic indicators that have been published only since early 2018, the picture is somewhat better, but far from encouraging.
A notable uptrend began in late 2018. However, an attempt to move higher over the summer has failed and the most recent figures have pushed it lower again. Yet despite the fall, there is room for further drops as the support line remains further down.
All in all, FXStreet's Surprise Index is pointing to a higher chance of a downside surprise than an upside one.
US Economic Activity table
When looking at the surprise indicator, we mentioned recent data. We will now take a closer look at economic figures related to the GDP release.
We can see that the previous growth figures' trend was neutral – unable to provide guidance. Hard data, such as durable goods orders released earlier this week – have been upbeat. The same goes for retail sales – where the US consumer is carrying the weight of the US economy.
However, forward-looking figures have been downbeat. Almost all the Purchasing Manager's Indexes (PMIs) have been trending lower. The list includes the ISM, Markit, and Fed data points.
All in all, the past looks better than the future – and the broad picture is mixed.
| Gross Domestic Product | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
|---|---|---|---|---|---|---|
| GDP Annualized | 3 | 2.10% | Neutral | 2.47% | 3.00% | 2.76% |
| GDP Price Index | 3 | 2.50% | Neutral | 1.67% | 1.96% | 1.93% |
| Production activity | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
|---|---|---|---|---|---|---|
| Non-Def Cap Goods exAir | 3 | 0.40% | Up | 0.90% | 0.62% | 0.30% |
| Durable Goods | 2 | 2.10% | Up | 0.93% | 0.68% | 0.49% |
| Durable Goods exDef | 2 | 1.40% | Up | 1.30% | 0.74% | 0.41% |
| Durable Goods exTrans | 2 | -0.40% | Neutral | 0.37% | 0.30% | 0.09% |
| Factory Orders MoM | 2 | 0.60% | Neutral | -0.30% | 0.10% | -0.13% |
| Industrial Production MoM | 2 | -0.20% | Neutral | 0.07% | -0.08% | 0.01% |
| Sales activity | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
|---|---|---|---|---|---|---|
| Retail Sales Control Group | 3 | 1.00% | Up | 0.73% | 0.64% | 0.36% |
| Retail Sales MoM | 2 | 0.70% | Up | 0.53% | 0.60% | 0.28% |
| Retail Sales exAutos MoM | 2 | 1.00% | Up | 0.63% | 0.64% | 0.28% |
| Manufacturing Surveys | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
|---|---|---|---|---|---|---|
| ISM Manufacturing PMI | 3 | 51.20 | Down | 51.67 | 52.62 | 54.50 |
| ISM Prices Paid | 2 | 45.10 | Down | 48.73 | 50.10 | 53.67 |
| Markit Manufacturing PMI | 2 | 49.90 | Down | 50.30 | 50.80 | 52.34 |
| Philly Fed Manufacturing Survey | 2 | 16.80 | Up | 12.97 | 12.80 | 11.29 |
| Services-related Surveys | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
|---|---|---|---|---|---|---|
| ISM Non-Manufacturing PMI | 3 | 53.70 | Down | 55.23 | 55.46 | 57.23 |
| Markit Services PMI | 2 | 50.90 | Down | 51.80 | 51.86 | 53.39 |
| Markit PMI Composite | 2 | 50.90 | Down | 51.67 | 51.78 | 53.25 |
| Chicago PMI | 2 | 44.40 | Down | 49.43 | 51.92 | 57.12 |
| Chicago Fed National Activity Index | 2 | -0.36 | Down | -0.14 | -0.21 | -0.10 |
Conclusion
US GDP is a major economic indicator and any deviation from the small downgrade that is expected may rock the US dollar. FXStreet's proprietary tools – and especially the surprise index – are pointing showing a higher probability that the data falls short of expectations – potentially weighing on the dollar.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.