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Estimating US economic activity for the third quarter remains a guessing game. The Bureau of Economic Analysis was scheduled to publish its initial estimate yesterday, Oct. 30, but the government shutdown has delayed the report, along with other crucial data releases.
Private-sector numbers are filling in some of the blank spots, but uncertainty is on the rise about the economy. On the bright side, using the dwindling set of updated numbers available for nowcasting Q3 still suggests that the output probably rose at a solid pace.
Economic growth increased at an estimated 2.8% annualized pace in Q3, based on the median estimate for a set of nowcasts compiled by CapitalSpectator.com. If accurate, economic activity cooled from Q2’s strong gain 3.8%, according to the last reported estimate from the government before the updates stopped on Oct. 1.
The current Q3 estimate should be viewed cautiously, of course. But the nowcast suggests that there was a fair amount of growth momentum in the previous quarter to keep recession risk low.
The partially updated Weekly Economic Index (WEI), published by the Dallas Fed, suggests as much. WEI edged down to a 2.0% pace for the week through Oct. 25, an estimate that equates with a four-quarter GDP growth that’s slightly below the 2.1% pace reported for Q2. The report suggests that the economic trend is holding steady. But since some of the WEI inputs – weekly jobless claims, for instance – aren’t updating, the latest estimate may be misleading.
Optimists can also point to the Atlanta Fed’s GDPNow model, which is currently estimating a strong 3.9% for Q3 economic activity (as of Oct.27) – well above the median estimate in the chart above and slightly faster than the Q2 advance. But here, too, the updates should be viewed with a non-trivial degree of skepticism due to the missing data for some of the model’s inputs.
The government shutdown is costing the economy about $7 billion per month, according to a new report by the nonpartisan Congressional Budget Office (CBO). That’s a rounding error for a $30 trillion economy, but it’s still another headwind at a time when signs of a labor market downshift have been persuading the Federal Reserve to cut interest rates.
This much is clear: the longer the shutdown lasts, the stronger the headwind. Meantime, it’s still reasonable to guesstimate that economic activity grew at a moderate pace in Q3. The outlook for Q4, by contrast, is far more uncertain from the perspective of developing a reasonably accurate nowcast.