Heads up: Newly revised sales data could kneecap Q1 GDP growth

Summary

A revision to prior retail sales data published this week is a potential game-changer. If our interpretation of the latest revisions is correct, then real GDP growth for Q1-2023, which will be reported on Thursday morning, could come in at half the growth rate that is presently expected by the consensus.

The rug just got pulled out from under Q1 PCE

The Commerce Department revised data on core retail sales this week to show substantially slower growth in January and February, implying considerably less growth in personal consumption expenditures (PCE) in the first quarter than first reported. As a result, we have reduced our real PCE growth forecast for Q1 to 2.6% from 4.4% previously. This revision to our PCE growth forecast, along with a tweak to our estimate of inventory accumulation, pulls our overall forecast for GDP growth lower by a full percentage point. We now look for real GDP to have grown just 0.8% in the first quarter. As of this writing the consensus expectation is still 2.0%. If our interpretation of the latest revisions is correct, then the GDP report, which is on the docket Thursday morning, could come in at less than half the growth rate that is presently expected by the Bloomberg consensus. Critically and somewhat counter-intuitively, this is not bad news for the consumer. The level of core sales is actually slightly higher as a result of the changes, it's just that the growth occurred earlier. More simply: the monthly increases during the past three months are smaller as a result of the revisions even as the overall level of spending is actually slightly higher.

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