A Sharp Slowing in U.S. Economic Growth is Projected For 2015 Q3

At the start of each month, the U.S. Institute for Supply Management (ISM) releases data on the state of the manufacturing and non-manufacturing industries of the U.S. economy. The data are closely followed by economists, stock market brokers and the media as they provide the earliest reading on the current state of the economy. The ISM provides data on the current performance of a number of indicators related to the manufacturing and non-manufacturing industries such as production, employment, new orders and backlog of orders, deliveries, inventories, new exports, imports and prices. Figure 1 plots the evolution since the first quarter of 1998 of U.S. real GDP growth and a proprietary coincident economic index from The Forecasting Advisor, built from a number of indicators from both the survey on manufacturing and non-manufacturing industries.

The aggregation of indicators from both surveys into a coincident economic index provides a close relationship with historical movements in real GDP growth. In other words, the Figure suggests that the coincident index contains useful information on the actual strength of economy. Since the ISM data are never revised, except for the annual updates of the seasonal adjustment factors, and very timely, the coincident economic index is a very useful real time forecasting tool that provides insightful intelligence and leading information on the near-term outlook for U.S. economic growth.

U.S. Real GDP Growth Outlook

The projection for the third quarter of 2015 is reported in Figure 2. The U.S. economy is now projected to slow markedly from the very strong gain of 3.7% (preliminary estimate, annual rate) in the second quarter of 2015. Real GDP is projected to rise by 2.1% in the third quarter, down by a full percentage point from the previous projection (August 6, 2015 projection). The downward revision primarily reflects the adverse impact on the economy of the sharp fall in oil prices in August. The projection for the third quarter will be updated on October 5th with the releases of ISM data for the month of September. The official first estimate of real GDP growth for the third quarter will be released by the U.S. Bureau of Economic Analysis (BEA) on October 29th.

© Robert Lamy, The Forecasting Advisor.

Read more commentaries by The Forecasting Advisor