As we predicted when we highlighted the cumulative decline in the control retail sales group, it was only a matter of time before the banks started cutting their Q1 GDP forecasts. Sure enough, first it was Barclays trimming its Q1 GDP tracking forecast from 2.3% to 2.2%, and now it is Goldman's turn which just cut its latest Q1 GDP forecast from 1.7% to 1.5%.
BOTTOM LINE: Although February retail sales rose a bit more than expected, negative back revisions more than offset the front-month surprise. Separately, initial and continuing jobless claims both fell more than expected. Import prices rose more than expected in February, but declined on a year-on-year basis. We reduced our Q1 GDP tracking estimate by two-tenths to 1.5%.
February retail sales rose 0.3% (vs. consensus +0.2%). Core retail sales?used by the Commerce Department to estimate the personal consumption expenditures (PCE) component of the GDP report?also rose 0.3% (vs. consensus +0.2%). By category, the strongest gains occurred in sporting goods (+2.5%) and non-store retailers (+1.2%), both bouncing back from weakness in January. (Non-store retailers mainly represent online shopping.) However, back-revisions to core retail sales in January (-0.3pp to -0.6%) and December (-0.2pp to +0.1%) were significant and widespread across categories, suggesting a trajectory of consumer spending in Q1 that was weaker than we anticipated.
We reduced our Q1 GDP tracking estimate by two-tenths to 1.5%.
As a reminder, Goldman's original Q1 GDP forecast, as recently as a month ago, was for a growth of 3%. How things change when weathermen, pardon economists, are shocked to find it gets cold in the winter...