Economists revise down third quarter U.S. GDP forecasts as business investment missing in action

Richard Leong contributed to this post

U.S.durable goods orders rebounded a solid 9.9 percent in September following the prior month’s plunge. However, a proxy for business investment was essentially stuck in neutral. This was sufficiently worrying to JP Morgan economists to force them to revise down their estimates for third quarter U.S. economic growth down to 1.6 percent from 1.8 percent. Barclays economists also marked down their Q3 GDP forecast by 0.2 percentage point, putting it at 1.8 percent. The Reuters consensus forecast for the number, due out on Friday, is 1.9 percent.

JP Morgan economist Mike Feroli:

Don’t let the headline fool you: the September durables report was a big disappointment. In particular, the weakness in the capital goods figures leaves intact our concerns regarding the capex outlook. In light of today’s report we are revising down our expectations for tomorrow’s 3Q GDP report from 1.8% to 1.6%. We continue to look for 2.0% growth in 4Q, though there is now some downside risk to our business investment projection for next quarter. […]

Core capital goods orders were flat last month and core capital goods shipments were down 0.3%. These figures may not look so bad until you consider two factors; first, both numbers had been weak over the prior few months and some rebound was expected, and second, both numbers tend to be strong in the third month of the quarter. Topping it all off, both numbers were revised down a decent amount in August. All of these factors get reflected in the three-month average annualized change, which shows shipments declining at a 4.9% pace and orders sinking at a 23.5% annual rate.

Feroli cites some scary precedents for the drop in shipments:

Declines of these magnitudes are seldom scene outside of recession; this isn’t meant to raise recession alarms, but instead to highlight that we have the consumer to thank for keeping the economy above water.

Economic recovery may not be a durable good

Ouch. That was the general sentiment after this morning’s strikingly weak durable goods report for January, which suggested the Federal Reserve was right to flag slowing business investment as a worry in its January statement.

Chris Williamson, chief economist at Markit, wonders if this is the start of a trend:

The big question is whether the downturn in January is merely a statistical wobble in what we must remember is a very volatile data series, or whether demand for U.S. goods really slumped at the start of 2012. Reassuringly, other data sources such as business surveys suggest that demand has remained fairly resilient, and it seems unlikely that the disappointing performance will be replicated in coming months. However, these order book numbers remind us exactly why many policymakers are extremely cautious about the underlying strength of the US economy and that the recovery looks set to be a bumpy ride over the coming year.