For a piece of information to be desirable, it has to satisfy two criteria: it has to be important, and it has to be knowable. – Warren Buffett
Real GDP expanded at an annual rate of 6.5% in the second quarter. While output has now fully recovered its huge pandemic losses, 2Q GDP fell short of its 8.5% estimate due to an unexpected $166B drop in inventories. The contribution from inventories to quarterly GDP growth should be significant in the latter half of 2021 and early 2022. If the drawdown in inventories merely hits 0 in 3Q, then it would contribute ~3.5% to GDP growth next quarter. In addition to weaker inventories, more disappointment came from a 7.0% fall in nonresidential structures and a 9.8% decline in residential structures. On a more positive note, the uptick in 2Q GDP was driven by an 11.8% surge in personal consumption expenditures – a key driver of economic growth. Widespread business reopenings and vaccinations benefited both growth in services (+12.0%) and goods (+11.6%). Real domestic demand was also elevated at 7.9%. The 2Q GDP report also included the annual revision. The BEA’s initial estimates, especially for last year’s drawdown and recovery, seemed to be quite accurate with only slight revisions to 2Q20 from -31.2% to -31.4% and 3Q20 from 33.4% to 33.8%. In the 20 years prior to the pandemic recession, real GDP averaged 2.1%. Looking ahead, growth is expected to remain strong, fueled by job gains, pent-up savings and continued fiscal support. However, stickier inflation, the Delta variant, supply chain disruption and a shortage of available workers all have the potential to slow this so-far very robust recovery.
Happy Monday. Good Luck out there this week.
Global Spotlight
Inauguration day in Iran. President-elect Ebrahim Raisi will take office Aug. 5, marking the end of eight years of the presidency of Hassan Rouhani.
Russian military drills with Tajikistan and Uzbekistan. Russian, Tajik and Uzbek forces will hold joint military drills from Aug. 5-10 in Tajikistan, just miles from the Afghan border, a show of force intended to demonstrate solidarity and preparedness to an ascendant Taliban.
A Chinese COVID-19 vaccine forum. China will host its first virtual vaccine cooperation dialogue hosted by Foreign Minister Wang Yi on Aug. 5, an event billed as promoting the “fair” global distribution of vaccines that will see top diplomats from an unspecified number of countries attend alongside U.N. officials and pharmaceutical company representatives.
Whether former Mexican presidents will face the possibility of prosecution. Mexico will hold a referendum Aug. 1 on whether former Mexican presidents should face accountability for crimes they have allegedly committed in office.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 21Q2 earnings are expected to increase 89.8% from 20Q2. Excluding the energy sector, the earnings growth estimate is 75.0%.
- Of the 296 companies in the S&P 500 that have reported earnings to date for 21Q2, 88.5% have reported earnings above analyst expectations. This compares to a long-term average of 66% and prior four quarter average of 83%.
- 21Q2 revenue is expected to increase 21.8% from 20Q2. Excluding the energy sector, the growth estimate is 18.1%.
- During the week of August 2, 151 S&P 500 companies are expected to report quarterly earnings.
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