Thursday, April 07, 2016

Merrill: "Fading the first quarter GDP fade"

by Bill McBride on 4/07/2016 09:14:00 PM

The Atlanta Fed GDPNow estimate has fallen to just 0.4% annualized growth for Q1.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.4 percent on April 5, down from 0.7 percent on April 1.
From Merrill Lynch: Fading the first quarter fade
For the third year in a row, forecasters came into the first quarter looking for 2%-plus GDP growth, only to steadily revise estimates lower. [T]he Atlanta Fed’s GDPNow tracking [has declined] for 1Q in each year. They are far from alone: both we and the consensus have been doing the same thing. This weakness adds to market skepticism about a June Fed hike.

In both 2014 and 2015 we faded the weak 1Q data and argued that the recovery remained on track. Today, we see four reasons to reiterate that call. First, outside of the GDP adding up, the data look fine. Second, some of the weakness is likely due to lingering seasonal adjustment problems. Third, the fundamental backdrop points to moderate growth, not a big slowdown. Fourth, and perhaps most important, with potential growth slipping below 2%, and given the normal variation in the data, we should not be surprised to see near-zero quarters on an annual basis.
CR note: No worries.