Well, the “synchronous global growth” meme didn’t get much in the way of help from U.K. GDP on Friday, as Q1 growth basically flatlined at 0.1%, missing estimates and casting serious doubt on a May BoE hike that not long ago was seen as baked into the cake. The pound was crushed on the news – the SONIA curve is now pricing just a 20% chance of a May hike, down from 50% on Thursday. Unfortunately, that can’t be blamed on the weather.
So that’s a rather inauspicious sign for the growth narrative which is already laboring under faltering data out of the eurozone and persistent jitters about whether China’s glide path to a slower pace of growth will turn into a hard landing thanks to Trump’s quixotic trade stance.
That sets up the advance read on Q1 GDP stateside – consensus is 2% and core PCE is forecast at 2.5% which, as Bloomberg wrote earlier today, “would lead to lively discussion” at the Fed.
Wall Street tracking estimates were revised higher on Thursday despite disappointing capex data as analysts assessed the March advanced goods trade deficit. Here’s Goldman
Durable goods orders increased by more than expected in March, driven by a sharp increase in non-defense aircraft orders while core measures disappointed. Core capital goods shipments also declined, suggesting a slower pace of business investment growth. The March Advance Economic Indicators report showed a large decline in the goods trade deficit, in contrast to consensus expectations for a much more modest decline. Taken together, we increased our Q1 GDP tracking estimate by three tenths to +2.2% (qoq ar) ahead of tomorrow’s advance release.
In all, this morning’s reports on durable goods orders, advance trade in goods, and inventories contain offsetting effects. Weak shipments and softer inventory accumulation were drags on our GDP tracker, while the surprise narrowing in the goods balance boosted our estimated contribution from trade. On net and after rounding, the data push our Q1 GDP tracking estimate higher by 0.3pp, to 1.8%, from 1.5% previously. Hence, we see some upside to our official forecast of 1.5% (q/q saar) for the BEA’s advance estimate of Q1 GDP, which will be released this Friday.
On net, 1Q GDP tracking increased by 0.2pp,to 1.9% qoq saar from 1.7%. The positive surprise in trade (+0.5pp) was able to more than offset the negative surprises in capex (-0.1pp) and inventories (-0.2pp).
So those were the last minute revisions to tracking estimates ahead of today’s print. This of course all comes amid a backdrop characterized by a resurgent dollar and higher yields.
As usual, we’ll be looking forward to the reaction from President “Dragon Energy” because as everyone knows, GDP is his favorite economic indicator out of the ones he doesn’t understand (which is all of them). Reminder: he’s targeting 3% sustainable growth.
Estimates and priors
- GDP Annualized QoQ, est. 2.0%, prior 2.9%
- Personal Consumption, est. 1.1%, prior 4.0%
- GDP Price Index, est. 2.2%, prior 2.3%
- Core PCE QoQ, est. 2.5%, prior 1.9%
- Employment Cost Index, est. 0.7%, prior 0.6%
- U.S. First Quarter Advance GDP Grew 2.3%; Est. 2%
- GDP rose 2.9% in prior quarter, BEA said
- 1Q GDP forecast range 0.5% to 2.8% from 76 economists
- Personal consumption rose 1.1% in 1Q after rising 4.0% prior quarter; weakest quarter since 2Q 2013
- GDP price index rose 2% in 1Q after rising 2.3% prior quarter
- Core PCE q/q rose 2.5% in 1Q after rising 1.9% prior quarter
- Final sales to private domestic purchasers q/q rose 1.7% in 1Q after rising 4.8% prior quarter
- Nonresidential fixed investment, or spending on equipment, structures and intellectual property rose 6.1% in 1Q after rising 6.8% prior quarter
- U.S. First Quarter Employment Cost Index Rose 0.8%; Est 0.7%