Q2 US GDP forecast revised higher to 3.0%

It is believed that, private consumption and residential investment will rebound following the disappointing Q1 outturn to be driven mainly by private consumption and non-energy investment. Expected forecast is 2.7% growth in private consumption, up from 2.1% in Q1. In terms of contribution to growth, private consumption would add 1.8pp, 0.4pp higher than last quarter. Incoming data on housing have continued to point to a strong acceleration in residential investment in the quarter, as housing starts, building permits, improvements, and sales activity all moved higher on the quarter. Forecast of 12% q/q saar growth in Q2 means residential investment would add 0.4pp to growth. The strength of the incoming data on housing activity and home price appreciation led to modestly revise higher outlook for housing this year and next. Elsewhere, modest growth is expected in equipment investment (4.0%) and intellectual property investment (7.0%), and a further modest decline in structures investment (-5.0%), which reflects the continued adjustment of the energy sector to lower oil prices. 

"For the advance estimate of Q2 US real GDP, scheduled for release on Thursday, July 30, we revise our forecast higher to 3.0% q/q saar from 2.5% previously. Our GDP tracking estimate fell by 0.5% last week on weaker-than-expected retail sales and other inventory data, but even accounting for these changes incoming data appear to be stronger than we had previously forecast. Growth in line with our forecast should keep a data-dependent Fed on track for rate hikes later this year" notes Barclays.

It is believed net trade, which was a substantial drag on growth in Q1 to the tune of -1.9pp, to rebound and add 0.2pp to growth in Q2. Export growth should rebound from its 5.9% decline in Q1 and grow by 4.5% in Q2. Imports, which surged in Q1 by 7.1%, as rising by a modest 2.5% in Q2. This pattern is largely due to the resolution of the West Coast port strike in mid-February. The resolution to the strike and its subsequent effect on container traffic spilled over the quarter-end, leading to a surge in imports at the end of Q1 and a rebound in exports early in Q2. Accounting for the distortions to the data from the port strike, the signal from trade continues to be one of US dollar strength and weak external demand. For calendar year 2015, our outlook suggests net trade will drag growth lower by 0.6pp, in line with what historical episodes of US dollar appreciation would suggest. Finally, it is expected that, public consumption and investment to rise by 1.5% on the quarter, says Barclays.