GDP: The Most Important Number of the Week

With President Obama’s approval rating continuing to falter, one of the few things that can help him at this point is an economic recovery (or at least signs that one is underway). Tomorrow, the U.S. Commerce Department will provide a sneak peak of the second quarter gross domestic product. The number, which will be subject to several revisions, is expected to show that the economy shrunk at a slower rate than in previous quarters, which no doubt the White House will use to argue that its economic policies are working and we’re on the path to recovery. The adminsitration’s ability to do so will depend in large part on the way investors react to the news. Markets have already rallied in anticipation that the report will show a modest contraction. Marketwatch‘s survey of economists has the Q2 GDP number at -1.2 percent, while Reuters‘ has it at -1.5 percent. This compares with the steep 5.5 percent contraction in the first quarter. If the GDP meets or beats expectations, the market is likely to react positively, giving Obama a much-needed bit of good news to take into the weekend. If the number is worse than expected, then Friday’s story will likely be a market sell-off as investors determined that the recession would be deeper and last longer than anticipated. The news will be released tomorrow at 8:30 in the morning.

UPDATE: I should also note that any good news for Obama in tomorrow’s number could be short lived, because next week we’ll get the July unemployment report.