US: Don’t entirely dismiss the weakness in Q1 GDP - Nomura

With spending data pointing to decelerating economic growth, the research team at Nomura expects the Bureau of Economic Analysis (BEA) to report that US 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.”

“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%.”

“Given the slow growth in Q1, we expect to see some rebound in GDP growth in Q2. In particular, weak inventory accumulation in Q1 would provide a lower jumping-off point from Q1 to Q2, which means a small increase in the level of inventories could make a significant positive contribution to economic growth in Q2. However, a potential rebound in Q2 should be approached with caution.”

“Final demand, which excludes changes in private inventories, will be a more important indicator for economic growth and our calculation suggests that real final demand grew only moderately at an annual rate of 1.5% q-o-q in Q1, following a 1.1% advance in the previous quarter. Moreover, our aforementioned analysis on the potential impact of residual seasonality suggests that most of the recent weakness in spending reflects the underlying trend of the economy as opposed to measurement issues.”