The economy looks weak in the first quarter, but better days are coming
- March 24, 2018
- Posted by: consortiumconsultancy
- Category: Uncategorized
- GDP growth likely will be slow in the first quarter — as low as 1.4 percent, according to a UBS estimate — but should accelerate strongly later in the year.
- Bank of America Merrill Lynch sliced its growth estimate from 2.3 percent to 1.7 percent for Q1 but maintained its full-year 2.9 percent forecast.
- Earlier this week, the Fed increased its 2018 projection from 2.5 percent to 2.7 percent.
With expectations increasing that first-quarter growth will be nowhere close to earlier projections, there’s good news: The rest of the year still looks fine.
That point was driven home Friday when Bank of America Merrill Lynch became the latest Wall Street forecaster to knock down its growth estimates for the first three months of 2018. The firm’s economists now see GDP rising at just a 1.7 percent pace, compared to the 2.3 percent as of its most recent estimate.
However, BofAML economists Michelle Meyer and Anna Zhou see the weakness as temporary.
There will be “a stronger payback” in the second quarter, with growth now projected to run at a 3.7 percent pace, which is an increase from the original 3.3 percent estimate, they said. The third quarter also got a forecast bump, from 3.3 percent to 3.6 percent.
All said, that would put the annualized GDP gain at 2.9 percent, or just a shade below the 3 percent minimum growth that the Trump administration has targeted. Earlier this week, the Federal Reserve pushed its 2018 forecast from 2.5 percent to 2.7 percent.
“The economy still looks strong and we believe the upcoming earnings season will be solid,” Liz Ann Sonders, chief investment strategist at Charles Schwab, said in a note.
Hopes had soared for the first quarter after some of the early 2018 data, particularly in manufacturing, came in well ahead of estimates. The Atlanta Fed’s GDPNow tracker at one point showed growth at 5.4 percent, which would have been the best quarter of the recovery.
But a slew of reports since then, from disappointing auto sales to retail to housing, have caused virtually every economist to walk back their optimism. BofAML’s revision still keeps its forecast above the lowest, believed to belong to UBS at 1.4 percent.
Friday, though, provided some more good news.
February durable goods orders popped 3.1 percent, well ahead of the 1.7 percent consensus estimate and good for the fastest pace since June. The number was especially impressive considering how strong the metric was for 2017, rising 13.8 percent in the fourth quarter to make it the second-best gainer of all the components that go into figuring out GDP.
Overall, the number is not a huge contributor to the economy — about 7.6 percent for 2017 — but could be indicative of larger trends, particularly in investment.
“With borrowing costs low, capacity utilization on the rise and the recent corporate tax cuts likely to provide further support, we expect business investment to continue to expand at a healthy pace over the coming quarters,” Andrew Hunter, U.S. economist at Capital Economics, said in a note.
The Atlanta Fed did not alter its 1.8 percent projection from the day’s data, saying the gains in durable goods were offset by a slightly below consensus reading on new home sales.
CNBC’s own Rapid Update tracker, derived from a select group of economists, has been more optimistic about the first quarter, putting its Q1 growth estimate at 2.3 percent.
The market will get the final revision for the fourth quarter, which was last reported at 2.5 percent and expected to stay there, according to consensus. However, Rapid Update puts the final estimate at 2.7 percent, and BofAML expects 2.8 percent. BofAML expects growth to slow to 2.4 percent in 2019.