Early Estimates Point To Ongoing Slowdown For US Q1 GDP Growth

Preliminary nowcasts for US economic growth in the first quarter suggest that the slowdown in 2018’s second half will continue, based on a set of estimates compiled by The Capital Spectator. The degree of the deceleration remains open for debate, of course, in part because it’s still early in the current quarter. In addition, survey data for February reflect a pickup in growth in the services sector, which may be an early clue that the macro trend is firming up.

Meantime, the latest estimates for gross domestic product (GDP) for Q1 point to another round of deceleration. The median nowcast for this year’s first three months is a sluggish 1.4% increase (based on the seasonally adjusted annual rate). If correct, the US economy is on track to post a softer growth trend for the third straight quarter.

It’s reasonable to treat the current Q1 estimates cautiously at this stage, in part because survey data for February hints at the possibility that growth may be picking up. The US Composite PMI Output Index edged up to a moderately strong 55.5 in February, a seven-month high, IHS Markit reported yesterday. (A reading above the neutral 50 mark reflects growth.)

“The US PMI surveys tell a tale of two economies in February, with any slowdown story confined to the goods-producing sector,” says Chris Williamson, chief business economist at IHS Markit. “While manufacturing struggled, with the surveys consistent with a near stalling of factory output and order books, the service sector remained encouragingly resilient, enjoying its strongest burst of activity for seven months.”

Using the Composite PMI as a guide implies that US GDP growth in the first quarter is on track for a 2.6% gain, Williamson advises – well above the median 1.4% nowcast via the models cited above.

Monitoring the GDP trend on a year-over-year basis also paints a brighter outlook for Q1. The average for a set of combination forecasts reveals that the point forecast for this year’s annual Q1 increase will more or less hold steady at a moderately strong 3.1% pace before easing later in the year.

This week’s February numbers on payrolls will provide fresh guidance via hard data on the Q1 outlook, starting with today’s ADPWealth Strength IndexADP is Extremely Down and trending Down Employment Report. Economists are looking for a softer monthly gain in private payrolls – a rise of 180,000, according to Econoday.com’s consensus forecast, down from January’s 213,000 increase. But translating that estimate into annual terms points to a more or less steady, healthy year-over-year rise of 1.9%. That’s also The Capital Spectator’s annual projection for February, based on averaging a set of combination forecasts.

If the ADPWealth Strength IndexADP is Extremely Down and trending Down estimates are accurate, the odds will strengthen that Friday’s official jobs report (scheduled for March 8) from the Labor Department will also deliver encouraging news for the one-year change. In fact, analysts are projecting no less. Econoday.com’s consensus forecast sees the monthly gain for the government’s estimate of private payrolls downshifting to a 175,000 rise – well below January’s  stellar 296,000 increase. But the February projection translates to a strong 2.0% year-over-year advance, which is only fractionally below January’s 2.1% annual gain.

If the employment numbers for February fall in line with expectations, the weak Q1 GDP nowcasts at the moment look set for a round of upside revisions. If so, it’s reasonable to wonder if the recent slowdown in US economic growth is on track to stabilize rather than deteriorate further in 2019.