Moments ago we tweeted [4]that today's surge in the trade deficit will force banks to start cutting GDP forecasts. Sure enough, Goldman as usual, is the first to set the tone, by cutting its ultra real time GDP forecast from 2.0% to 1.8%.
BOTTOM LINE: Q1 GDP growth tracking +1.8% after trade, employment and wholesale inventory reports
1. This morning’s data had a modest negative impact on our tracking estimate of Q1 GDP growth. On net, we revised down our estimate to +1.8% from +2.0% previously.
2. First, imports increased more than expected, and because this occurred early in the quarter it had an outsized impact on the quarterly average growth rate. On its own, the upward revision to our imports estimate would have taken our forecast for Q1 growth from 2.0% to 1.3%. However, the larger drag from imports was partially offset by a few other positives. First, exports increased more than expected in January, helping lift Q1 net trade. Second, the composition of the trade report showed fewer net exports of capital goods. This implies that more capital goods shipments were used for domestic purposes, and therefore boosts our estimate of business capital spending on equipment and software. Third, state and local government employment was above our forecast, and we therefore nudged up our estimate state and local government spending in Q1 GDP. The wholesale inventories report was broadly in line with our expectations