Friday, April 25, 2014

A Few Q1 GDP Forecasts

by Calculated Risk on 4/25/2014 11:01:00 AM

The BEA is scheduled to release the advance estimate for Q1 Gross Domestic Product (GDP) next week on Wednesday, April 30th. The consensus forecast is for real GDP to increase 1.1% in Q1 (from Q4, annualized). Here are a few forecasts:

From Kris Dawsey at Goldman Sachs:

Despite GDP likely growing at an anemic rate of around 1.0% in Q1, we remain optimistic about the rest of 2014. The core narrative for a pickup in growth this year has not changed. The fiscal drag is still lower, consumer spending should still strengthen, and business investment seems poised for a comeback. We see the weakness in Q1 as mainly driven by temporary factors, including a large drag from weather and inventories. The recent encouraging dataflow—with the exception of some of the housing numbers—appears consistent with our forecast for a near-term pickup. For the remainder of 2014, 3%+growth remains our baseline. ...

We forecast 1.8% growth in real final sales in Q1 (GDP growth excluding the effects of the volatile inventories category). ... Inventory investment was a significant positive contributor to growth in 2013, adding 3/4 percentage point to growth over the four quarters of the year. ... In Q1, the rate of real inventory accumulation appears to have moderated based on the incoming data on manufacturing, wholesale, and retail inventories, which will be a drag on Q1 GDP growth.
emphasis added
From Merrill Lynch:
We think the first estimate of 1Q GDP will show sluggish growth of only 1.2% qoq saar. A large part of the weakness owes to the cold weather which held back economic activity in the beginning of the year. Inventories are also being drawn down, albeit gradually, as businesses were caught with excess stockpiles. We estimate that inventories will slice 0.6pp from growth, matching the drag to the economy from a wider trade deficit. Residential investment is also likely to contract, reflecting the decline in home sales and sluggish housing starts. ... We think momentum will improve in the spring, setting the stage for a rebound in 2Q with growth above 3.0%.

For the first release of 1Q GDP, we are looking for relatively soft readings on key inflation metrics in this report. Specifically, we expect both the GDP deflator and the core PCE deflator to rise 1.3% qoq saar for 1Q.
From Nomura:
Disregard the backward-looking Q1 GDP, April data should show the recovery taking off. ... Weather weighed on economic activity early in the year. This should be reflected in a markedly slower pace of GDP growth in Q1. We expect GDP to grow at an annualized rate of 0.9% in Q1, compared with 2.6% in Q4.
And on the April employment report to be released next Friday, the consensus is for 210 thousand payroll jobs added with Merrill forecasting 215 thousand and Nomura forecasting 225 thousand.