Jan Hatzius Warns Of Further GDP Downside Following Trade Deficit Update

Recently Jan Hatzius cut his Q1 GDP as was reported first on Zero Hedge, to 2.5%, even as the Goldman chief economist is still (we give it 2 weeks) keeping his FYE GDP outlook constant (who says bulge brackets don't believe in hockeysticks). Following the just released ugly trade data which as we suspected would lead to even more GDP downgrades, Dudley's successor is out with yet another warning that should come as manna from heaven to those who continue to believe in non-dilutable assets: "Through February, the trade data suggest a large drag on GDP growth in the first quarter and suggest downside risk to our 2.5% forecast." Gee whiz, Jan, if Q1 when the bulk of the tax stimulus is concentrated (which was the reason for Goldman's December bullish 180 on the economy) is unable to post an economic improvement, what is left for the rest of the year, when no more fiscal stimulus is projected, and when, gulp, QE3 is ending? We can't wait to hear your explanation for this.

Just out from Goldman:

BOTTOM LINE: US trade balance improves less than expected, suggesting downside risk to our Q1 GDP call.

KEY NUMBERS:
US trade balance -$45.8bn in Feb vs. GS -$42.5bn, median forecast -$44.0bn.
Import prices +2.7% in March (mom) vs. median forecast +2.1%.

MAIN POINTS:
1. The US trade balance improved much less than we expected in February, narrowing to -$45.8bn from a revised -$47.0bn in January. The "Chinese New Year effect" (discussed in the April 6 US Daily) was much smaller than we expected, with real goods imports declining by $4.5bn but less than half of the change due to manufactured goods imports. Meanwhile, exports were extremely weak, falling $3.7bn in real terms - the largest monthly drop in real exports on record outside a recession - so that the real trade balance improved by less than $1bn. Through February, the trade data suggest a large drag on GDP growth in the first quarter and suggest downside risk to our 2.5% forecast.

2. Separately, US import prices increased by 2.7% mom, reflecting increases in prices of fuels, other industrial supplies and materials (e.g. metals), and agricultural products. Prices of finished consumer goods excluding autos - which have the most direct implications for core inflation trends - declined by 0.2% mom after increasing by 0.5% in February. From a year ago, consumer goods import prices are up 0.3%. Prices of imports from China rose by 0.6% mom, the largest one-month gain since July 2008.