Goldman Revises Q1 GDP Estimate Higher To 3.7%, Sees Corresponding Future Weakness
Goldman's Jan Hatzius is now seeing a revised Q1 GDP, which will be announced this Friday, up from 3.2% (Goldman's estimate is 3.4%) to 3.7%. However, far from a good sign, this merely means that the imminent slow down is coming, and any gain in Q1 GDP over and above estimates, will result in a commensurate drop in Q2 and onward economic growth: As Hatzius points out: "Inventories are beginning to pile up at a rapid pace in the durable goods sector. These inventories rose 0.7% in April following increases of 0.6% and 0.7% in March and February, respectively. This is much faster than most companies will see as sustainable; hence some slowing in production is likely if recent - highly tentative - signs of abatement in orders (in the New York and Philadelphia Fed surveys) are at all indicative." Surely, this is nothing that a few extra trillion in QE or new fiscal stimulus can't fix, courtesy of the Central Committee.
A Mixed Report, Implying Stronger Q1 but Softening in April
BOTTOM LINE: Not a simple report to analyze. On orders: (1) aircraft orders dominated in April, as we expected; (2) ex aircraft, net changes in April were weaker than most expected; and (3) large upward revisions to March provide a substantial offset to that news. Meanwhile, upward revisions to capital goods shipments imply a larger upward revision to first-quarter growth than we previously thought (to 3.7%); however, durable goods inventories piled up at a rapid pace for a third consecutive month.
Durable goods orders +2.9% in Apr (mom, +21.6% yoy) vs. GS +4%, median forecast +1.3%.
Ex transportation -1.0% in Apr (mom, +23.4% yoy) vs. median forecast +0.5%.
1. This report does not have a simple story to it. In April, the increase reported for durable goods orders was heavily skewed toward civilian aircraft, which have little impact on near-term production given the long lead times in that industry. Excluding transportation, the net change in orders was weaker than most anyone expected (the low for 44 forecasts was -1.5%). For other types of (nondefense) capital goods, orders fell 2.4% in April.
2. However, data for March were revised up substantially, especially for the nondefense capital goods other than aircraft. Whereas previously these orders were reported up 4.5% (as of the factory orders release for March), they are now up 6.5%; in addition, the gain in February was pushed up 0.2 points to +3.0%. So more than four-fifths of the loss in April is recovered in the base. Total durable goods orders were also revised to show no change in March vs. -0.6% previously.
3. Upward revisions to capital goods shipments in January and February have an important bearing on the upcoming revision to first-quarter real GDP growth, due Friday. As a result of those revisions, we now estimate that real GDP rose 3.7% at an annual rate vs. the posted figure of 3.2%. Our previous call for this revision was 3.4%.
4. At the same time, inventories are beginning to pile up at a rapid pace in the durable goods sector. These inventories rose 0.7% in April following increases of 0.6% and 0.7% in March and February, respectively. This is much faster than most companies will see as sustainable; hence some slowing in production is likely if recent - highly tentative - signs of abatement in orders (in the New York and Philadelphia Fed surveys) are at all indicative.