It was back on January 30 that the Goldman economist team made its first downward revision to what then was a 3.0% forecast to Q1 GDP. Exactly three months later we find that Goldman was off by only 97% when Q1 GDP printed at 0.1%. That's ok - they are economists, and thus are expected to be massively, epically wrong. So here is Goldman with its first "tracking forecast" for Q2 GDP. It is.... drumroll.... 3.0%. How long until this number too is lowered to 0.1% (to be sure, all that rain in New York City has to detract at least 1%-1.5% from Q2 GDP right?).
BOTOM LINE: GDP rose much less than expected in Q1, although the weak print appears to be largely due to one-off factors. The April ADP employment report was roughly in line with expectations. Employment costs rose less than expected in Q1, pointing to subdued wage pressures. We are starting our Q2 GDP tracking estimate at 3.0%.
GDP (advance) +0.1% for Q1 vs. GS 1.0%, median forecast 1.2%
Personal consumption +3.0% for Q1 vs. GS +2.3%, median forecast +2.0%
ADP employment +220k for April vs. GS +220k, median forecast +210k
Employment cost index +0.3% for Q1 vs. median forecast +0.5%.
1. GDP grew only 0.1% in Q1 (vs. consensus +1.2%). Personal consumption rose 3.0%, although the increase appears to have been largely due to special factors in services spending, including a weather boost to utilities and Affordable Care Act-related healthcare spending. Outside of personal consumption, business fixed investment disappointed our expectations, falling 2.1%. Equipment investment was particularly weak (-5.5%). Exports fell 7.6%, with net exports subtracting eight-tenths from growth. Residential investment declined 5.7%, reflecting weaker housing data. As we expected, inventory accumulation returned to a more normal level ($87bn), subtracting a further six-tenths from growth. Government spending was roughly flat on the quarter. Final sales to domestic purchasers—excluding the effect of inventories and net exports—rose 1.5%. Overall, we do not see Q1 growth as representative of the underlying trend, in light of weather distortions, the out-sized subtraction from net exports, and the drag from inventory normalization.
2. ADP employment increased 220k in April (vs. consensus 210k). The distribution of job gains by industry was similar to that seen in recent months, with the largest job gains in professional and business service jobs (+77k) and trade, transportation, and utilities (+34k). Construction employment added 19k, while manufacturing employment was a bit soft at +1k . March ADP employment growth was revised up by 18k to 209k. ADP has yet to prove itself as a reliable predictor of nonfarm payroll job growth, following methodological revisions in 2012.
3. The employment cost index—which measures total compensation costs—rose 0.3% at a quarterly rate in Q1 (vs. consensus +0.5%), a slowdown from +0.5% in Q4. On an unrounded basis, the gain was the slowest since 2009Q2. Wages and salaries also grew 0.3% in Q1 (vs. +0.5% in Q4) and an even slower 0.2% in the private sector. On an unrounded basis, wage and salary growth was the slowest in the 32-year history of the series. Benefit costs rose 0.4% in Q1 (vs. +0.6% in Q4). On a year-over-year basis, compensation costs for all civilian workers rose 1.8% and wages and salaries rose 1.7%. Overall, the report continues to suggest subdued inflationary pressure from the wage side.
4. We are starting our Q2 GDP tracking estimate at 3.0%.