There is much hope pinned on continuing economic recovery in the United States despite a deterioration of the global economy virtually everywhere else. According to the May 2014Â Blue Chip Economic Consensus Forecasts:
“U.S. real GDP is expected to increase by 2.4 percent in 2014 as a whole, 0.5 of a percentage point lower than the 2.9 percent growth rate projected in the February 2014 forecast. For 2015 the consensus forecast now expects an overall 3.0 percent growth in U.S. real GDP, same as the February 2014 forecast.”
Let’s do some quick math. Real, inflation-adjusted, Gross Domestic Product (GDP) for the first quarter of 2014 was -2.13% annualized after being revised slightly higher from -2.96%. The first estimate of the second quarter’s economic growth was 3.89% annualized. If we average the two together, the first half of 2014 is currently sporting an annualized growth rate of 0.88%. Got it?
Here is my point. In order for real economic growth to hit the current target of 2.4% annualized for the entire year, the final two-quarters of 2014 must hit a minimum growth rate of 3.92%. The chart below shows the history of quarterly annual growth rates of the economy since 2006.
There have only been 2 out of the past 34-quarters that have yielded an economic growth rate of greater than 3.92%. There have been ZERO times that real GDP annualized growth has hit 3.92% consecutively.
While it was not surprising to see a bounce back in activity after a contractionary first quarter, there are several economic data points that suggest that sustainability of the bounce is unlikely.
Trade Deficit
The recent release of the trade deficit numbers had economists scrambling to upgrade estimates of Q2 economic growth due to a contraction in the deficit. Net exports, exports minus imports, is one of the inputs into the calculation of GDP as follows:
GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M).
Y = C + I + G + (X − M)
