US: More uncertainty than usual for Q1 GDP – ABN AMRO

Bill Diviney, senior economist at ABN AMRO, points out that for the US economy, the advance estimate for Q1 GDP will be released on Friday and they expect a softening in momentum to 1.5% qoq annualised, while consensus expects growth to be stable at 2.2% (same as Q4).

Key Quotes

“We note greater uncertainty in Q1 GDP than usual, thanks largely to the government shutdown over December-January, which led to delayed salary payments for 800,000 federal employees, and disruption to tax refunds and regulatory approvals.”

“The high frequency data suggests activity has rebounded more quickly than anticipated, with retail sales in particular pointing to strong growth in private consumption. However, investment – for which higher frequency data is more limited (particularly for intellectual property investment) – could be the fly in the ointment.”

“What do the tracking estimates point to? The Atlanta Fed’s tracker for Q1 implies an acceleration to 2.8%, while the New York Fed’s measure is closer to our own forecast at 1.8%. Which is the more historically accurate? Typically the Atlanta Fed measure. This differed from the advance GDP release on average by just 0.3pp over the past four quarters, compared to a 0.9pp difference for the New York Fed’s tracker. However, there have been occasional outliers, and the Atlanta Fed estimate has at times differed by as much as 1-2pp from the GDP release.”

“Regardless of Friday’s outturn, we continue to expect an overall slowing in growth in 2019 to 2.3% from 2.9% in 2018, with quarterly annualised growth likely to dip below potential (c.1.8%) by year end.”

“Given muted inflationary pressure and moderate growth, we think the Fed is unlikely to resume rate hikes anytime soon, and our base case is for no further hikes in the current cycle.”