Real GDP Tracker and the impact of Hurricane Harvey
As of 28 August 2017, IHS Markit estimates that real US GDP will increase at a 3.5% annual rate in the third quarter. This rate exceeds the prediction in our latest US macro forecast, released on 10 August. Our outlook has been revised upward due to a number of factors and data releases. The second-quarter advance quarterly services survey showed robust revenues for services industries in the second quarter, while weaker-than-expected consumer price growth in July means that consumer spending will likely get a lift. There was also good news on the housing front, as more construction than expected began on single-family homes. But the biggest news came from the July retail sales report, which was unqualifiedly strong as consumers came out swinging. In short, incoming data suggests a strong rate of growth in the third quarter of 2017 - perhaps the best since mid-2014. The second quarter is looking stronger than before, too; our current thinking on the second estimate of real GDP growth in the second quarter is that an upward revision to 3.1% is likely. Meanwhile, our forecast for real consumer spending growth currently stands at a 3.0% rate for the third quarter - also a hike from the 2.6% rate in our August forecast.
These estimates did not include any impact from Hurricane Harvey, which made landfall in Texas on 25 August. The storm has already demolished records for rainfall over the Houston area. Although we are still assessing the economic impact, the hurricane's toll on third-quarter economic growth is not likely to be enormous. While locally devastating, the geographic impact of the flooding has been fairly concentrated. Second, GDP - the yardstick used to measure growth - measures production, not destruction. Hurricanes discourage some types of production; people cannot work during a storm and its aftermath, for example. But homes will need to be rebuilt or repaired after the storm, which will add to GDP. While the disaster undoubtedly will mean major disruption to the lives of many Americans, the nation as a whole is still likely to enjoy a robust quarter of economic growth.
Chris G. Christopher, Jr. is the Executive Director of US Macro, Global Economics, and Consumer Markets for IHS Markit.
Posted 29 August 2017