Analysts at Nomura had updated their US economic outlook to take account of the CBO’s new spending path and they now expect real GDP to grow 2.7% and 2.6% y-o-y in 2018 and 2019, respectively, down 0.1pp from our earlier forecasts, but still well above trend.
Key Quotes
“Our Q4/Q4 percent changes for 2018 and 2019 now stand at 2.9% and 2.1%, respectively. The FOMC recently revised up its corresponding growth numbers to 2.7% and 2.4% for 2018 and 2019, respectively, at the March FOMC meeting. The difference between our forecasts and the FOMC’s indicates that despite the downward revision to our spending path forecast, we still anticipate a more frontloaded aggregate demand response relative to many on the Committee.”
“This week holds a number of data releases that will help round out our view on Q1 GDP growth. In particular, retail sales for March, which have been unusually weak over the past two months, could rebound. We expect core (“control”) retail sales to increase strongly by 0.5% m-o-m, following the two previous readings of 0.1% and 0%. Consumer sentiment remains elevated, notwithstanding a slight trade-related decline in the University of Michigan’s preliminary consumer survey for April.”
“Despite the expected pickup in spending, our GDP tracking model indicates that Q1 growth is likely to come in below 2%. Importantly, we see this as only temporary weakness and FOMC officials have struck a similar tone. In the March FOMC minutes, participants “expected the first-quarter softness to be transitory, pointing to a variety of factors, including delayed payment of some personal tax refunds, residual seasonality in the data, and more generally to strong economic fundamentals.”
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