US Q1 GDP: Trend looks set to continue – ING

James Knightley, Chief International Economist at ING, suggests that they are looking for US Q1 GDP growth to slow to 2.4% while the consensus is a little lower, predicting 2% (both outcomes would be below the 4Q trailing average). 

Key Quotes

“As is usual with this advanced reading for GDP, there is a broad range of views in the market. The Bloomberg consensus is spread from +1.3% to +2.8% and adding to the uncertainty; various regional Federal Reserve Banks publish “Nowcast” figures based on the monthly economic data flow. The New York Fed’s model suggests 2.9%, the Atlanta Fed’s model says 2.0% while the St Louis Fed says it will be around 3.5%, implying that there is a strong chance of a market moving number when we actually get the data publication on Friday.”

“Our view, however, is that weakness will be led by domestic demand. 4Q17 activity was boosted by post-hurricane rebuilding and the replacement of damaged/lost home and business equipment, which won't have been repeated. However, net trade should make a positive contribution thanks to the dollar weakness and a strengthening global economy while inventories are likely to be rebuilt after being sharply run down in 4Q17. Nonetheless, a 2% growth rate for a Q1 is still very good by historical standards and if the pattern of the weakest quarter for growth continues, this suggests 2018 will be a very good year.”

“Good news for 2018!

• Our full year 2018 growth forecasts is 3%, and a rebound in the second quarter would set us up nicely for this. Retail sales rebounded in March, suggesting the domestic economy has regained some momentum while confidence is strong and the jobs market is robust, which is contributing to higher wages. Tax cuts will also be supporting spending while a rebound in asset prices following 1Q volatility is helpful. 
• Meanwhile, the dollar’s weakness means that exporters are in a competitive position that allows the US to really benefit from the upturn in global demand. As such we are provisionally forecasting 2Q GDP at around 3.5%. With inflation pressures starting to become more evident, this will help keep the Fed on course to hike interest rates three more times in 2018.”