JP Morgan has cut its forecast for US annual output in the second quarter of the year to one per cent from two per cent, citing the unexpected 0.5 per cent fall in wholesale inventories in May.
However a reduction in the stock of unsold goods held by wholesalers in the second quarter “should imply a greater need to increase production” in the current quarter, and the bank has revised up its projections for third quarter gross domestic product (GDP) to 2.5 per cent from 2.0 per cent. The bank said its revision to current quarter growth was entirely due to a revised estimate of the inventory contribution.
If our revised estimate is right, Fed officials won't be thrilled about easing back on stimulus in September in the face of back-to-back one-handles on GDP growth. Even so, we believe the FOMC remains more focused on the labor market, which has been performing well in spite of weak GDP, and will move ahead this fall with a scaling back of asset purchases.