The Penguin Parade Begins: Goldman, BofA, Credit Suisse All Cut Q2 GDP Forecasts By 0.5% On Average

Tyler Durden's picture

Remember when the "thesis" for Q2 growth was that just because Q1 was so horrible, Q2 will have to bounce back? Well, oops.

Following the horrendous ADP data, the abysmal April trade numbers, and the disastrous Q1 productivity collapse (which certainly should make the Fed reassess their baseline estimate for 2.8% GDP growth), the penguin parade in which sellside "analysts" rush to show just how clueless they really are, has begun, first with Bank of America which cut its Q2 GDP forecast by 0.5% to 3.6%, then Credit Suisse lowering its Q2 forecast by 1 whopping percentage point to 3.0%, and now heeeeere's Goldman, which cuts not only its Q2 GDP forecast to 3.4% from 3.8%, but also the already abysmal Q1 GDP to worse than -1%.

Expect many more cuts before this latest farce is over.

Here's Goldman's Jan Hatzius:

BOTOM LINE: ADP employment grew less than expected in May.  The trade deficit widened considerably more than expected in April and was also revised wider for March.  Productivity was revised down a bit more than expected in Q1.  We reduced our Q1 past-quarter tracking by two-tenths to -1.1% and also reduced our Q2 tracking by four-tenths to 3.4%.

 

1. ADP employment increased 179k in May (vs. consensus 210k). The largest job gains were seen in professional and business service jobs (+46k) and trade, transportation, and utilities (+35k). Construction employment added 14k and manufacturing employment added 10k. April ADP employment growth was revised down 5k to 215k.  ADP has yet to prove itself as a reliable predictor of nonfarm payroll job growth, following methodological revisions in 2012.

 

2. The April trade deficit widened unexpectedly sharply to $47.2bn (vs. consensus -$40.8bn), from $44.2bn in March, which was also revised wider. The widening in April was mainly driven by a larger real ex-petroleum trade deficit (-$4.5bn to -$48.4bn). Exports fell 0.2%, driven by a decline in goods exports, while imports rose 1.2%.

 

3. Productivity was revised down to -3.2% in Q1 (vs. consensus -3.0%), from an initial estimate of -1.7%. As a result, unit labor costs were revised up to +5.7% (vs. consensus +5.3%). The increase in unit labor costs reflected both the weak productivity numbers and a 2.3% increase in hourly compensation.  Smoothing through some of the quarter-to-quarter volatility, unit labor costs rose 1.2% over the last year.

 

4. As a result of the wider trade deficits reported for March and April, we reduced our Q1 past-quarter tracking by two-tenths to -1.1% and our Q2 tracking by four-tenths to 3.4%.

But wait, there's good news: because any collapse in Q2 GDP will simply mean that Q3 will have to be boosted that much higher. Just like Q1. Just like Q4, and so on. Because when the rigged, propaganda music is playing one has to dance.