Heads up: Negative print for Q1 GDP growth?

Summary

• We are not formally changing our projection of a 0.6% annualized GDP growth rate in the first quarter, but the risks to that estimate appear to be skewed to the downside when the BEA reports data tomorrow.
• The U.S. international trade deficit in goods widened more than expected in March amid a surge in imports. The data suggest that net exports will exert a larger drag on Q1 GDP growth than the already sizable 2.0 percentage points we have penciled in for the quarter.
• Some of the surge in imports–we estimate real goods imports jumped about 9% in March–may have ended up in inventories, which would partially offset the drag from net exports.
• Regardless, we wouldn't be surprised if the advance estimate of Q1 GDP growth is slightly negative. That said, the headline growth rate will be misleading as it will likely mask reasonably solid consumer and business demand.
• A negative growth rate in the first quarter also does not indicate recession. Instead, the official arbiter of recessions—the Business Cycle Dating Committee at the NBER—looks at a number of monthly indicators in determining business cycle peaks, such as nonfarm payrolls, which have continued to grow at a solid pace.
• Although the economy does not appear on the cusp of another downturn, the probability of a recession next year is not insignificant.

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