The best quarter in history – no downside surprise can take away that characterization of third-quarter growth in the US. The world’s largest economy rebounded from the coronavirus-related coma in the second quarter and roared by 33.1% annualized according to the first release.
Economists expect the second estimate to confirm the first one, yet there are reasons to expect an upside surprise.
The bullish case for GDP
First, recent economic figures beat estimates – and that includes GDP releases. The consensus for the initial publication was for an increase of 31% annualized and data for the second quarter was upgraded in the second and final publications.
Source: FXStreet
Secondly, incoming data such as Factory Orders and Personal Income for September beat expectations. These figures were released after the initial GDP data came out.
Thirdly, German growth figures were upgraded to the upside, from 8.2% to 8.5% quarterly. The roaring back of the global economy from the covid freeze may have been underestimated.
Why the dollar is unlikely to cheer the data
Markets witnessed a “calendar comeback” on Monday, as Markit’s robust Purchasing Managers’ Indexes figures triggering a rally in the dollar. It is uncommon to see second-tier statistics having such an impact.
However, that may have been a one-off event. Moreover, Markit’s data is for November while GDP refers to the three months ending in September. Perhaps most importantly, GDP figures face fierce competition with other releases.
Thursday’s Thanksgiving holiday has compressed several other publications to Wednesday. These include Durable Goods Orders for October and Personal Income for October and weekly Unemployment Claims.
Therefore, it would take a substantial upside surprise – perhaps annualized GDP growth of 34% or higher – to boost the greenback, while a smaller upgrade would probably be shrugged off by investors. Conversely, a downfall to around 32% would probably weigh on the world’s reserve currency.
Such significant shifts were earth-shattering in the pre-pandemic era – but these are not normal times.
Conclusion
Economists may be overly cautious to project a mere confirmation of third-quarter growth, and there is room for an upside surprise. However, timing and other factors may limit the impact on the dollar.
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