The pace of US economic output is set to soften in the government’s “advance” GDP report for the first quarter that’s scheduled for release at the end of this week (Apr. 27), according to several estimates compiled by CapitalSpectator.com. The projection for Friday’s update puts the economy on track to post a slowdown in Q1 growth vs. the previous quarters for the third straight year.
Optimists say that a deceleration in growth will likely be followed by a rebound in Q2 and beyond, echoing the trend in recent years. Some economists say that a quirk in the seasonal adjustment methodology used by the Bureau of Economic Analysis accounts for the soft Q1 numbers. Whatever the explanation, a repeat performance of weakness is widely expected for this Friday’s release.
Econoday.com’s consensus forecast sees first-quarter growth slowing to 2.0%, for example — well below the 2.9% increase in last year’s fourth quarter. But the possibility of an upside surprise can’t be ruled out. The current estimates via Now-casting.com and the St. Louis Fed’s nowcast, for instance, call for 3%-plus growth in Q1 — well above recent surveys of economists.
The dismal scientists at Barclays, for instance, are managing expectations down. Last week the bank cuts its Q1 growth estimate to just 1.5%. “Incoming data during the quarter has suggested less momentum than previously anticipated,” Barclays advised in a note clients.
In line with that view, yesterday’s update of the Chicago Fed National Activity Index reflected a slowdown in economic activity in March, providing support for the slow-growth Q1 estimates. Although the three-month average of the index eased only slightly, signaling low recession risk for March, the monthly reading fell sharply after a strong profile for February.
The good news is that there’s a case for expecting a rebound, according to survey data published on Monday by IHS Markit. “The US economy picked up pace again at the start of the second quarter,” said Chris Williamson, the firm’s chief business economist. “The April PMI surveys registered the second-strongest monthly expansion since last October.”
Meanwhile, hard data published to date still points to low recession risk. As noted in Friday’s US Business Cycle Risk Report, a broad reading of numbers through the end of last week continue to reflect a healthy macro trend.
Nonetheless, a softer GDP report on Friday could dent sentiment, particularly if the results fall below the crowd’s roughly 2.0% outlook. But based on what we know at the moment, the probability that a new downturn has started is low and so another soft run of Q1 GDP growth by itself won’t change the analysis.