Brocker.Org: Economists slash second quarter growth outlook, dimming hopes for strong snapback

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Economists have revised first tracking quarter GDP to 0.8 percent, down from a higher expectation of 0.9 percent before Thursday’s data, according to the Rapid Update survey. The second look at first quarter GDP will be released by the government Friday morning.

Economists caution that it’s still early in the second quarter, and the trade and inventories data is preliminary. In the minutes of the Federal Reserve’s last meeting, the Fed noted that the weakness it is seeing in the consumer and inflation appears to be transitory.

“The advance economic indicators report showed a decrease in wholesale inventories and a wider goods trade deficit in April. The weaker than expected trade data and slower implied pace of inventory accumulation led us to revise down our Q2 GDP tracking estimate by two tenths to 2.8 percent,” wrote Goldman Sachs economists. The Goldman economists said they also now expect to see first quarter growth revised to 1 percent Friday, versus 1.1 percent previously.

Housing data this week was also disappointing when new home sales fell 11.4 percent and existing home sales also fell by 2.3 percent in April.

Barclays economists cut their tracking forecast for the second quarter to 2 percent. They trimmed 0.2 percentage points based on the housing data, and 0.4 on weaker export growth and the inventories data.

“We’re going to get data on personal spending next week, and we’ll get a pretty good look at the consumer. I’m assuming that consumer and business spending will be stronger and will ultimately offset this,” said Michael Gapen, chief U.S. economist at Barclays. “I think we’re going to end up around 3 percent.”

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