JPM Cuts Q1 GDP Forecast To Just 0.3%

While we wait to see if the Atlanta Fed will cut its final Q1 GDP estimate ahead of tomorrow’s official print to 0% or negative, here comes JPM which after slashing its Q1 GDP tracker from 0.6% to 0.4% yesterday, having started the quarter – like most others on Wall Street – at 3%, just trimmed its Q1 GDP estimate to the lowest yet, at just 0.3%.

Here is the full note from JPM’s Daniel Silver

We now believe that real GDP increased 0.3% saar in 1Q. This incorporates the various source data that were released this morning as well as a correction to our treatment of the annual revision to the retail sales data that was released yesterday. The updated details of our forecast are in the table below.

In terms of the retail sales data, it appears that this year the BEA will not incorporate the updated figures until the May GDP report, so this Friday’s GDP release will be based on an older vintage of retail sales data. Reverting to the older data, we think Friday’s GDP report will show real consumption at 0.9% saar.

Turning to today’s reports, the flurry of information was a negative for 1Q growth on net, mainly through the inventory components. Wholesale inventories declined 0.1% in March, retail inventories increased 0.4%, and durable manufacturing inventories ticked up 0.1%. These figures continued what has been a weak run for much of the inventory data, and we now think that the real change in inventories in 1Q will actually be negative (at -$2bn saar). This very weak inventory figure expected for 1Q should be a positive development for 2Q growth, but we hold our 2Q growth forecast at 3.0% saar.

Separately, the nominal goods balance widened from -$63.9bn to -$64.8bn in March, with declines in both exports (-1.7%) and imports (-0.7%) during the month. This was slightly less widening in the deficit than we had been expecting for the month and it looks like net exports will be a small positive for growth in 1Q. However, the trade report did have some negative implications for equipment spending, and we now think that real equipment spending increased 5.2% saar in 1Q despite a modest upside surprise on the core capital goods shipments data that were also released today. Core capital goods orders and shipments have both been trending higher lately, with the latest figures showing core orders up 0.2% in both February and March and core shipments up 0.4% in March after a 1.1% gain in February.