Goldman's Q1 GDP Forecast: From 3.0% To 1.0% In Under Three Months

Tyler Durden's picture

Back in December 2013, as we do after every periodic bout of irrational exuberance by Goldman's chief economist Jan Hatzius et al (who can forget our post from December 2010 "Goldman Jumps Shark, Goes Bullish, Hikes Outlook" in which Hatzius hiked his 2011 GDP forecast from 1.9% to 2.7% only to end the year at 1.8%, and we won't even comment on the longer-term forecasts) designed merely to provide a context for Goldman's equity flow and prop-trading axes, we said it was only a matter of time before Goldman (and the rest of the Goldman-following sellside econo-penguins) is forced to once again trim its economic forecasts. Well, as so often happens, we couldn't be more correct.

Overnight, four months after our prediction, the FDIC-backed hedge fund not only that, but so much more that even we were shocked, because from a Q1 GDP which Goldman had originally predicted was going to be 3%, the crack team of economists - or is that team of economists on crack - lowered its Q1 GDP to, drumroll, 1%! And that's in the aftermath of the stronger than expected Durable Goods reports. Because it's only logical that good news is bad news. And vice versa.

From Goldman, hammering the final nail on their coffin of forecasting humiliation:

  • The March durable goods report was the last important piece of source data to be released before the Q1 advance estimate of real GDP next Wednesday (April 30). With the GDP release rapidly approaching, we take a comprehensive look at our GDP tracking estimate.
  • Based on data in hand, real personal spending appears to have grown at a roughly 2.3% annual rate, boosted by a jump in household utilities spending. Components of business fixed investment probably posted moderate gains, while residential investment and net exports were likely a drag on growth. Government looks to have been a roughly neutral contributor.
  • Incorporating new analysis on mining & utilities and farm inventories, inventory investment looks like an even larger drag on growth than we had previously assumed. We are moving our final Q1 GDP estimate down to 1.0%, four-tenths below our last tracking estimate.

But before anyone gets any ideas that Goldman has learned their lesson, or any lesson for that matter, we read this:

We expect Q1 to be the low point of the year for growth, reflecting a substantial weather and inventory drag. Growth should pick up to 3%+ on average for the remainder of 2014.

Yeah, you read that right:

Q1 will probably be the low point of the year for growth


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.

Of course, what Goldman forgot to add is that it "probably" will be the low point unless it rains, is windy, sunshiny, hotty, sweltery, meteroite showery, World War Three-y or any other climatic or geopolitical condition that otherwise detracts from the priced to perfection centrally-planned, artificial, manipulated economy.


Let's refresh sometime in, or just after Q4, when growth for the remainder of the year average well below half of what Goldman was expecting.