[Note: FRED hasn’t gotten around to updating the GDP data. I’ll update this post once the graphs are available. UPDATE: Posted now.]
This morning’s preliminary reading of Q2 2018 GDP at +4.1% was generally in line with forecasts. The coincident data, as I’ve reported in my “Weekly Indicators” column, as well as things like industrial production, the regional Fed reports, and real retail sales, have all been very positive for the past few months. So, “hurrah!” for the growth of one to four months ago.
One point widely notied, which I’ll also repeat: exports added about 0.5% more than usual to the GDP number. This was almost certainly producers trying to get ahead of Trump’s trade wars, and will likely subtract an equivalent percentage over the next quarter or two. In other words, GDP ex-frontrunning the trade war was about 3.6% annualized.
But will it last? As usual, my attention is focused not on where we *are*, or more properly, recently *were*, than where we *will be* in the months and quarters ahead.
There are two leading components of the GDP report: real private residential investment and corporate profits. Because the latter will not be released until the second or third revision of the report, I make use of proprietors’ income as a more timely if less reliable placeholder.
So let’s take a look at each.
Real private residential fixed investment actually declined slightly (blue). Measured by the more precise method of its share of the GDP as a whole (red), residential investment it was even more significant:
According to Prof. Edward Leamer, this typically peaks about 7 quarters before the onset of a recession. As it has not made a new high since five quarters ago, and must be considered a signficant leading indicator of recession at this point, although it is only down about half the percentage from its peak as the least amount prior to a recession (-3% vs. -6% before 2001).