Brocker.Org: US: Don’t Entirely Dismiss the Weakness in Q1 GDP – Nomura


Analysts at Nomura explained that with spending data pointing to decelerating economic growth, we expect the Bureau of Economic Analysis (BEA) to report that Q1 GDP growth slowed to 0.2% q-o-q saar (Consensus: 1.0%) from 2.1% in Q4.

Key Quotes:

“Based on data that came out this week, our Q1 estimate was lowered by 0.8pp from our previous forecast of 1.0%.

Although several special factors cloud the Q1 picture and increase the uncertainty surrounding our Q1 forecast the weakness cannot be entirely dismissed. Growth in spending over the past few months was sluggish, and our Q1 GDP tracking estimate has been hovering below 1.0% q-o-q saar since the end of March. Similarly, the Atlanta Fed’s GDPNow tracking estimate has been below 1.0% since 5 April.

Today’s trade and inventory data from the March Advance Economic Indicators Report by the Census Bureau, on balance, lowered our tracking estimate. The advance estimates of both retail and wholesale inventories for March were weaker than expected. Plus, February wholesale inventories were lowered. These readings imply weaker than expected inventory accumulation in Q1. Previously, we had expected some pick-up in inventory buildup in March as a result of weakness in final sales, but that was not the case. 

The advance estimate of March goods trade deficit was slightly narrower than we anticipated, but this was not enough to offset the drag from inventories. Additionally, incoming information suggests that the BEA will not incorporate annual revisions to retail sales into the advance estimate of Q1 GDP. After annual revisions to retail sales lowered core retail sales in Q1, we revised down our tracking estimate to 0.8% from 1.0% on Wednesday.

The reversal of the impact of these revisions on our Q1 GDP tracking model was positive to our tracking estimate. Combining these developments this week, we lowered our Q1 GDP tracking estimate by 0.6pp to 0.2% q-o-q saar from 0.8%.”