Q1 U.S. GDP Looking Slower But Still With Significant Momentum
Our Q1 GDP estimate now stands at 2.0% annualized, not much changed from the 2.4% estimate we made in February, though this would now be the slowest quarter since a decline in Q2 2022. The Atlanta Fed’s nowcast is a little stronger than our view at 2.5%, though when we made our 2.4% forecast in February, the Atlanta Fed was at 3.4%.
A 2.0% increase would not be a conclusive signal that a significant underling slowing is under way, with much of the slowing due to a bounce in imports hitting net exports, and bad weather in January hitting the Q1 total. March data should mostly show solid momentum entering Q2.
We expect a 2.4% increase in consumer spending after two straight gains slightly above 3.0%, with mixed detail. Retail sales are likely to decline in Q1, hit in particular by a weak January, but services are heading for a gain of 4.8%, which would be the strongest since Q3 2021.
We expect a 3.7% increase in business investment, matching the Q4 increase, with a pick up from two straight declines in equipment but with structures slowing significantly from four straight strong gains.
Construction spending has generally been weaker in Q1 to date, with weather probably a factor. Slower public construction spending has us forecasting a seven quarter low 1.2% increase in government.
Residential construction has been holding up better. We expect residential investment to rise by 2.4%, versus 2.8% in Q4.
Under our forecast final sales to domestic buyers (GDP less inventories and net exports) would rise by 2.3% after two straight gains of 3.5%.
Net exports is likely to be a significant negative though this will be due to a strong 10.8% rise in imports outpacing a healthy 7.8% rise exports and thus not a suggestion of economic weakness.
Some of the rise in imports will go into inventories, where we expect a modest positive contribution of 0.2% to GDP. We expect final sales (GDP less inventories) to rise by 1.6%.
After strong data in January and to a lesser extent February, even with a subdued March Q1 is set to see an acceleration in core PCE prices, we project by 3.4%, after two straight quarters at 2.0%.