Whattup, forex homies! Tomorrow (November 29) at 1:30 pm GMT we’ll see Uncle Sam’s second growth estimate for Q3 2017. Will it be as good as the initial reading suggested?
Here’s what you need to know about the event:
What does “preliminary” GDP mean?
The gross domestic product or GDP offers the most comprehensive snapshot of economic performance within the country, which is why is very important to both decision-makers and forex traders alike.
The Bureau of Economic Analysis (BEA) actually releases three GDP estimates: the advanced reading, the preliminary reading, and then the final reading.
The advance reading is the least accurate since it’s the earliest estimate, but it generally triggers the biggest reaction since it’s the first GDP release on the lineup.
The preliminary or second estimate then builds up on the advanced reading, as revised or more complete data come in. As for the final reading, well, it’s exactly what it says on the tin – it’s the third and complete estimate printed near the end of the third month after the quarter in question.
How did the “advanced” release fare?
Uncle Sam printed a growth of 3.0% for Q3 2017, which is higher than the 2.7% rate expected but is ever so slightly lower than Q2’s 3.1% reading that marked the highest since Q1 2015.
Details of the report showed that personal consumption expenditure, which was revised from 2.8% to 3.3% in Q3, contributed a lot to the uptick. A lack of imports also led to trade making its biggest growth contribution in almost four years, while a jump in inventories added 0.73 points to growth.
Last but not the least is the Fed’s closely-watched PCE price index, which printed at 1.5% after Q2’s 0.3% increase. Not surprisingly, a popular gauge of rate hike expectations signalled stronger likelihood of a rate hike from 32% earlier in the week to 40% after the GDP update.
The strong reading fared really well with investors who were expecting disruptions from hurricanes Harvey and Irma. And with the ADP report – which was released on the same day – also clocking in much better than expected, investors had reasons to cheer the Greenback.
Dollar bulls took advantage of the overall dollar strength and didn’t come up for air until the next day when a weaker-than-expected pending home sales release coincided with Treasury Secretary Mnuchin sharing that a weaker dollar would be more beneficial for the economy.
What’s expected of the preliminary release?
Traders are widely expecting Q3 2017 GDP to get upgraded from 3.0% to 3.2%, which would make it slightly faster than Q2’s 3.1% reading.
But remember that higher inventories and lower imports played huge parts in pushing up the advanced reading.
Unfortunately, Uncle Sam’s trade deficit widened slightly in July, recovered a bit in August, and then widened again in September. Imports had fallen at slower rates in July and August and actually jumped in September although exports have also performed strongly in both August and September.
Looking at the previous releases, we can see that Q3’s preliminary readings do tend to be higher than the advanced numbers, especially in the last five years.
The odds are also about even when it comes to the report printing better or worse than analysts had estimated, though the actual readings have outperformed expectations in the last four years.
If we do see a GDP upgrade, then we’ll likely see the dollar retrace some of its monthly losses against its major counterparts.
There are other factors at play, however. Remember that market-movers like Fed’s Janet Yellen and Jerome Powell as well as Treasury Secretary Mnuchin are sharing their two cents this week.
If traders pay more attention to their sentiments, then the dollar’s reaction to the report might be short-lived or even reversed over the next trading sessions.