Sharp Import Compression Foreshadows Downside Economic Surprises

QI TAKEAWAY Non-oil imports pulled off an impressive 180 in the four months ended July. The composition of GDP growth likely will get downgraded across Street estimates as third-quarter data on inventories, household demand and business investment are harvested. Given the starting point of 0.9% for the third quarter, what’s to come will manifest in a third consecutive negative GDP print.

  1. Non-oil U.S. import volume has fallen four straight months since March, registering a 25.6% annualized decline; in data back to 1994, four-month declines have occurred just 3% of the time, and every contraction in excess of 20% has seen real GDP fall in the same quarter
  2. During prior annualized declines in non-oil import volumes of at least 20%, private inventories have subtracted at least one percentage point from quarterly GDP growth; with S&P’s estimate currently at -0.5%, supply-side weakness could surprise in Q3 GDP
  3. Private domestic final demand has contracted every time that non-oil import volumes have fallen at a 20% or higher annualized rate; in light of this signal, current Q3 GDP estimates of 1.4% from the Atlanta Fed and 1.1% from Bank of America appear too optimistic


Posted in Quick Quill.