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Wall Street is waiting tomorrow’s GDP report. This will be the first report on how well the economy did for the second quarter. The government reports each quarter’s GDP growth three times, at the end of the each month following the quarter.

The initial estimate is usually pretty far off the mark. Three months ago, Wall Street got nervous when the initial estimate for the first quarter was just 3.1%. It was later revised to 3.5%, then again to 3.8%.

I find this very annoying. Look at this AP story from three months, and bear in mind that the entire “back story” is wrong. The economy wasn’t hitting a “soft patch,” and the economy’s performance actually exceeded expectations. Investors didn’t know the whole story until the GDP report was revised.

These revisions can be pretty big. I’d prefer to see the government hold off on any economic report until it has a good number. Even if it takes several weeks, the market needs to trust this information.

My guess is that the economy grew by 3.7% for the second quarter. That's just a guess of a hunch of a prediction. Even if I’m wrong, it won’t change my investment strategy at all. The only important aspect of a GDP report is its trend. The economy has expanded above its long-term trend of 3% for eight straight quarters. This will probably be the ninth.

If not, we still need more data to confirm a trend. My advice is to watch tomorrow's GDP report, but don't act on it.

Posted by edelfenbein at July 28, 2005 9:35 PM