US Revised Q1 GDP Estimates to be Tweaked Lower

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The US Department of Commerce will be releasing the second revised GDP estimates today. The GDP estimates cover the first three months of the year. The initial GDP estimates, as per the advance GDP report, saw the US economy rising 3.2% in the first quarter ending March 2019.

Economists polled forecast a headline GDP print of 2.5%, which would be a slightly slower pace of growth compared to the previous quarter.

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U.S. GDP
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The preliminary report beat expectations that assumed the US economic growth would sputter in the first quarter of the year. However, according to the preliminary reports, growth bounced back sharply from the fourth quarter of 2018.

In the final three months of 2018, US GDP growth slowed to a pace of 2.6%. The expectations for a slower pace of GDP growth came as a result of the trade war with China.

The first quarter preliminary report was the first time the US GDP grew above 3% since 2015.

US GDP Rises 3.2%, According to Estimates

Preliminary data showed a 3.2% increase in the annualized GDP growth rate. However, despite the solid headline print, underlying factors showed a different picture.

Private consumption and investment grew at a slower pace of 1.3% annually. This was the slowest pace of growth in the said sectors in nearly six years. Consumer spending was up just 1.2% in the first quarter. Business investment was also weaker, slowing to 2.7% from 5.4% in the previous period.

Net trade helped to improve the overall GDP figures for the period. Exports grew sharply while at the same time, imports declined, leading to a surplus. Exports gained 3.7% while imports fell 3.7% for the period.

Disposable income grew by 3% while prices excluding food and energy advanced 1.3% for the three months ending March 2019.

The preliminary GDP report helped to offset concerns during the time. Economists were wary that the economy could plunge. Concerns about growth also grew after the US yield curve inverted, leading to panic among investors.

Despite the first estimate painting a positive picture, investors still remain concerned especially given the current geopolitical scenario.

Q1 GDP to be Revised to 3.1%

The preliminary report was released on April 26th. Since then a host of economic reports came out, giving a rather mixed picture. This led to economists revising their expectations on the GDP numbers for the first quarter.

The personal spending and income outlays saw a 0.9% and a 0.1% increase respectively for the month of March 2019.

Meanwhile, wholesale inventories were down 0.1% on the month. However, the slower pace of wholesale inventories in March was offset by a higher revised reading for February. February’s wholesale inventories doubled from the initial estimates of 0.2% to 0.4%.

Despite the expectations of a slight decline in the reported figures, the overall data will still confirm a +3% GDP growth rate, putting it as one of the best quarters of growth in over four years.

However, the excitement from GDP estimates will not be as much as compared to the initial reports.

Since April, the heightened trade tensions with China and the breakdown in talks alongside the US ban on Huawei and intentions to blacklist other Chinese tech companies could weigh on future growth.

Forward tracking indicators of the GDP already put the second quarter GDP growth rate to just under 1.5%.

Therefore, the impact of a revision to the first quarter GDP will not be that big on the markets. With the expectations that growth could slow in the second quarter, this has been offset by the Fed opting to leave rates unchanged.

At the recent Fed meeting minutes, concerns were mostly on inflation rather than growth. This underlines the fact that policymakers are quite confident that the US economy will continue to grow steadily.

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