Goldman On GDP And Surging Claims: Expect "Softer Nonfarm Payroll Growth In April Than March"

Not at all surprising, Goldman's economic team continues to (pretend) it is in denial, knowing full well the second it downgrades its Q2 and H2 numbers it is game over. As such its "review" of the ugly Q1 GDP number came out smelling like rainbows and unicorns, namely "this mix of growth - stronger consumption and less inventory building - suggests a bit more momentum heading into Q2." Let's see how this mix is revised in the second and of course third GDP revision. However, where Goldman gets ominous, is its observation of next month's NFP number. If Hatzius is correct (and with his 1.75% Q1 GDP he was the closest of all to the real number), look for the nonfarm payroll number to be beyond ugly, fully opening the door for further QEasing.

From Goldman Sachs


1.Real GDP increased by 1.8% (qoq annualized) in Q1, close to our and consensus forecasts. However, the composition of the increase was slightly more favorable than expected. Most importantly, consumer spending increased by 2.7%. While down from 4.0% growth in Q4, this was well-above the consensus estimate of a 2.0% gain. In contrast, inventory investment was slightly weaker than we had thought. This mix of growth - stronger consumption and less inventory building - suggests a bit more momentum heading into Q2.

2. Other components of GDP were broadly in line with expectations. Growth in business fixed investment (capex) cooled, adding just 0.2pp to overall growth after adding 0.7pp in Q4. Firms actually purchased more equipment and software, but this was offset by a sharp decline in investment in structures. Residential investment was also a modest drag on growth (of about 0.1pp). Net trade subtracted 0.1pp from GDP growth after adding 3.3pp in Q4. This swing mostly reflected stronger imports.

3. Inflation news in the report was mixed. The overall GDP deflator increased by 1.9%, less than the consensus forecast of a 2.3% gain. However, the core PCE deflator increased by 1.5%, more than we and the consensus had forecast.

4. Separately, initial jobless claims climbed to 429k in the week ending April 23, and are now clearly above average levels for February and March. Although technical factors could be adding some noise (e.g. the Easter holiday), we now think the persistent rise indicates an actual in increase in filing activity. Overall, the latest claims reports may point to softer nonfarm payroll growth in April than March.