Evening Brief – 07.31.23
Unexpectedly high US consumer confidence and personal income data released last week has prompted economists to swiftly and substantially raise their economic growth forecasts for the third quarter of 2023.
According to a CNBC survey, economists have raised their GDP projections to 1.7% from 0.3% in the third quarter and to 0.4% from 0% in the fourth quarter. Meanwhile, the survey revealed a negative print of 0.2% compared with 0% in the first quarter of 2024.
The upward revision to growth marks the third consecutive quarter that forecasters have consistently underestimated US economic strength. Predictably, an economic slowdown has now been pushed out – again.
Given the way GDP is calculated, it is possible that consumers may not need to significantly increase their spending habits for the remainder of the quarter for spending to end up being healthy. This is due to the fact that June was so strong.
The survey showed that when it comes to inflation, economists’ forecasts were closer and more consistent. The outlook for core inflation in the third quarter is 3.6%, then a drop to 2.9% in the first quarter of 2024.
As a result of lower inflation expectations, the year-over-year increase in disposable personal income is already above pre-pandemic levels, implying that consumers should be able to continue spending.
Higher interest rates and still uncomfortably tight lending standards, as evidenced in the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey released Monday, will undoubtedly limit spending, but the pattern among forecasters appears to be unmistakable.
They have underestimated consumer strength while overestimating the impact of increasing interest rates and inflation on bottom-line real growth.