Previewing Today's Q1 GDP Print
In 45 minutes we will get the first unrevised big picture look of how the US economy did in the record hot weather-boosted first quarter of 2012. Consensus is looking for a +2.5% print, although according to some preliminary analysis, the weather, which simply pulled "demand" forward, may have resulted in an up to 30-40% increase in the baseline print. Whether or not that is the case depends on the flow through Q2 data, which so far has been quite horrible as we showed yesterday, but far more importantly, on how much debt the Treasury issues, as when one cuts out the noise, the only thing that does matter for "growth" is what the net re-leveraging in the system is. Everything else is mostly weekly BLS BS that only serves to increase the general level of Schrodingerian confusion. Anyway, for those who enjoy observing the trees and ignoring the forest, here is a preview of what to expect today, first from Bloomberg and then from Goldman.
First, courtesy of Bloomberg Brief and its chief economist Joseph Brusuelas:
Economists are forecasting growth of 2.5 percent, according to a Bloomberg survey, in line with the u.S. long-term trend. The primary driver of this growth is likely to be an increase in consumer spending and strong retail sales boosted by pent- up demand for durable goods. Personal consumption expenditures are likely to expand at a 2.3 percent rate, which should translate to a contribution of roughly 1.7 percentage points to growth. This should result in a real final sales number of 2.1 percent, up from the 1.1 percent posted during the final three months of 2011.
The quality of this growth stands in stark contrast to the $52 billion in inventory building that accounted for roughly two-thirds of growth during the fourth quarter of 2011.
Somewhat surprisingly given the slowing of overall government spending, an increase in defense expenditures by the federal government will probably swing the contribution of government spending to a source of growth from a net drag.
Rounding out the sources of growth is an- other solid increase in outlays on equipment and software and a pick-up in the pace of residential investment.
While the net drag from the trade deficit will likely decline to 0.1 percent from 0.7 percent last quarter, the portion of the deficit associated with petroleum imports appeared to decline even with a sharp increase in prices and a growing economy. This suggests that net exports will be the major swing factor in the first estimate of first quarter growth by the Bureau of economic Analysis. Prior to the April 12 publication of the February trade deficit, growth was tracking near 1.7 percent.
In any case, the likely slowdown in demand for domestically produced goods given the slower pace of global growth in general, and from Europe in particular, will likely lead the BeA to revise its estimate of a narrowing in the trade deficit.
The unexpected surge in inventory building by firms in February may cause the quality of growth to be less than what economists expect in the quarter, which may cast a pall over what would otherwise be a solid quarter.
Forward-looking investors may not take much solace from better quality of growth. Based on recent data reports, the economy lost momentum in March due to payback from weather, and early April data has generally failed to meet expectations.
And now from Goldman:
Worse headline, better composition. We estimate that Q1 GDP growth increased by 2.7% (annualized) in Q1, down from 3.0% in Q4 (we revised up our estimate by one tenth after Wednesday's durable goods report). Despite the slight deceleration in overall GDP growth from Q4, the composition looks set to be meaningfully stronger. Specifically, Q4 growth was boosted by a 1.8 percentage point (pp) contribution from inventories. Domestic final sales--GDP less inventories and net trade--increased by just 1.3% in Q4. In contrast, we estimate that inventories added only 0.2pp to growth in Q1, and expect an increase in domestic final sales of about 2.5%. Most of this increase reflects firm consumer spending, with some help from residential investment and business investment on equipment and software. We look for government spending and business investment on structures to subtract from growth.