Macro April 09, 2019 / 07:24 pm UTC

In-Depth Research: Preview: US Q1 GDP Now Seen Up 2.2% Annualized, but Picture Mixed and Uncertain

By David Sloan

We have upgraded our Q1 US GDP forecast to 2.2%, up from 1.2% a month ago, though the picture is mixed and still very uncertain.

Chart

Our expectation for consumer spending has actually gone down with a rise of only 0.7% seen. Jan personal spending data was weaker than retail sales implied. Despite our weak forecast, we assume an upward revision to Jan before a subdued Feb, and stronger growth in Mar. However a sharp fall in Dec meant the quarter got off to a very weak start.

Chart

There will be extra uncertainty with Feb consumer spending data not scheduled until after the first Q1 GDP estimate, though we will have seen retail sales data through Mar. This adds to uncertainty over services, which we expect to rise by 2.2%. Durables should fall by 9.6% on weak auto sales in Jan and Feb, though Mar did see a bounce. Non-durables should rise by a modest 1.1%.

Chart

Real disposable income should report healthy growth of 2.7%, suggesting the Q1 slowing in consumer spending will not be sustained.

Chart

Business investment should see a modest increase of 3.2% after a stronger 5.2% rise in Q4 that was led by what looks like a difficult to sustain surge in intellectual property. Signals on non-residential construction are marginally negative and signals on equipment marginally positive.

Chart

Public construction spending, led by state and local government, is looking strong, and we expect an above trend 3.7% rise from government. Despite some lingering impact from the government shutdown, we expect defense to continue to support Federal government spending.

Chart

While final sales to domestic buyers (GDP less inventories and net exports) should outperform consumer spending, our 1.5% forecast is down from 1.9% a month ago.

Chart

The upward revision to our forecast has been led by inventories and net exports, where data are available only for Jan, meaning the picture remains highly uncertain. A narrower Jan trade deficit has us expecting exports to rise by 3.8%, assisted by resumption of soybean exports to China, while imports should rise by 0.2%.

Chart

Final sales (GDP less inventories) should rise by 2.0%, meaning a positive contribution of 0.5% from net exports. We assume wider deficits in Feb and Mar, though our Feb forecast is narrower than the consensus.

Chart

At the start of the quarter we assumed inventories would be trimmed after two quarters of strong growth. However, Jan data was very strong. Inventories still look due for a trim at some point, with the Jan rise looking like an involuntary response to weak consumer spending, but we currently expect a positive contribution to Q1 GDP of 0.2% from inventories.

Chart
4Cast Ltd. and all of its affiliates (Continuum Economics) do not conduct “investment research” as defined in the FCA Conduct of Business Sourcebook (COBS) section 12 nor do they provide “advice about securities” as defined in the Regulation of Investment Advisors by the U.S. SEC. Continuum Economics is not regulated by the SEC or by the FCA or by any other regulatory body. This research report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Nonetheless, Continuum Economics has an internal policy that prohibits “front-running” and that is designed to minimize the risk of receiving or misusing confidential or potentially material non-public information. The views and conclusions expressed here may be changed without notice. Continuum Economics, its partners and employees make no representation about the completeness or accuracy of the data, calculations, information or opinions contained in this report. This report may not be copied, redistributed or reproduced in part or whole without Continuum Economics’s express permission. Information contained in this report or relied upon in its construction may previously have been disclosed under a consulting agreement with one or more clients. The prices of securities referred to in the report may rise or fall and past performance and forecasts should not be treated as a reliable indicator of future performance or results. This report is not directed to you if Continuum Economics is barred from doing so in your jurisdiction. Nor is it an offer or solicitation to buy or sell securities or to enter into any investment transaction or use any investment service.
Analyst Certification
I, David Sloan, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.