Earlier we noted how Goldman cut their tracking forecast for Q1 GDP from 2.3% to 2.0% on weaker consumer spending data (which somehow resulted in a surge in consumer confidence: oh well, the US branch of the Chinese Department of Truth has to justify its budget somehow). Not even a full two hours later, the firm has just whacked its forecast for Q1 GDP again, this time on the major ISM miss. And this, ladies and gents, is ultra high frequency economics, where HFT machines push the market up and down without reason, and where this has an immediate impact on economic indicators, all changed around in real time.
1. The ISM manufacturing index unexpectedly declined in February, in contrast to the improvement seen in all the major regional manufacturing surveys. The composition of the report was broadly in line with the headline result. The new orders index—the most forward looking component—fell to 54.9 from 57.6 previously, returning close to its level in December. The employment index fell to 53.2 from 54.3, and the production index slipped to 55.3 from 55.7. One bright spot in the report was the export orders index, which rose to 59.5. This component has surged nearly 10 points since October. The price paid index rose to 61.5, indicated increasing input cost pressures for firms.
2. Construction spending declined by 0.1% (month-over-month) in January, in contrast to consensus expectations for a moderate gain. However, the report also included a large upward revision to construction spending growth in November (to +1.9% from +0.4%). The level of construction spending was therefore close to consensus expectations, once revisions are taken into account.
3. That being said, the components of the construction spending release which directly affect GDP were weaker than expected on net. We therefore revised down our tracking estimate of Q1 GDP growth by one tenth to 1.9% (annualized).
Watch for the Wall Street lemming brigade to quickly follow in Goldman's footsteps.