All Hail the US Q3 GDP, But Don’t Put Too Much Trust On It

Posted Friday, October 28, 2016 by
Skerdian Meta • 2 min read

The US economy went through a slowdown in the first two quarters due to the panic that gripped the global financial markets. The winter period played it´s part as well in this slowdown, as it´s usually the case with the US during the cold season.  

But in the summer months, the economic recovery picked up pace again, helped by an improving global economic sentiment, hence the interest rate hike decision by the FED for December. The Q3 GDP report which was just released, supports the USD bulls, the FED hawks and the forex analysts who think that the US economy has left behind the muddy waters. 

The US Q3 GDP headline number is not to be ignored after all. The US economy grew by only 1.4% in Q2, while the main Q3 GDP now shows a 2.9% growth in Q3. That´s a great number and some of the components are quite impressive too. The exports grew by a massive 10% and imports grew by 2.3%. The prices ticked higher as well. 

The immediate reaction to the headline GDP number was enough to make us 25 pips. 

But looking at the USD charts, the market seems less than impressed by the GDP report after the first excitement. At least, that initial move was enough to send NZD/USD lower, which triggered the take profit in our forex signal in this pair. 

While some of the components of the report are positive, the rest are mostly negative or neutral at best. The inventories rose by around %12 billion, which adds an extra 0.6% growth to the headline GDP number. Without the buildup in inventories, GDP would be around 2.3%. 

But that´s not the worst part, employment costs remained stagnant, wages ticked 1 point lower and the GDP sales missed the expectations by quite some margin. Do you think the worst is over? Hold on, there´s more coming. 

The spending on equipment by businesses fell by 2.7%. That´s not the worst part either, exports which contributed for nearly 0.85% of this 2.9% growth, are likely to have been a seasonal thing. I´m hearing that the soybean exports were the reason for this. If these sort of exports remain around these levels all year round would be great, but I´m afraid we might see a dive next quarter if another type of export doesn´t make up for soybeans.

The surge in the USD pairs after the initial blip tells the story, the market doesn´t really believe the headline number. Mind you, this is just the initial reading, there will be two revisions to this in the coming months, so don´t bet your house on it. 

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