US Q1 GDP preview - Nomura

Analysts at Nomura offered their preview for this week's GDP Q1 for the US.

Key Quotes:

"Q1 GDP, first estimate (Friday): With spending data pointing to slowing economic growth, we expect Q1 GDP growth to have slowed to 1.0% q-o-q saar from 2.1% in Q4. Some, including the FOMC, have argued for looking through this weakness in Q1, blaming residual seasonality and other technical reasons. Yet, our analysis indicates that residual seasonality which previously tended to lower Q1 GDP growth has been mostly reduced after methodological changes to seasonal adjustment of the source data of the GDP by the BEA (read more: Don’t Blame All of the Weakness in Q1 GDP on Residual Seasonality, Special Report, 19 April 2017). 

Supporting the result from our analysis is the positive net contribution to top-line Q1 2016 growth from the components (business investment, nonresidential structures, goods exports, defense spending, and state and local government spending) that have been identified as primary sources of residual seasonality. As for the first quarter this year, according to our Q1 GDP tracking model, these components, on balance, contributed positively to the growth in Q1. Business fixed investment, in particular, improved notably in Q1, with strength in structures and investment spending. Rather, we expect weakness in other components. 

Incoming data for Q1 suggest personal consumption expenditure likely slowed significantly. Vehicle sales and core retail sales both showed weakness in Q1 compared with Q4. In addition, the contribution from inventory investment in Q1 was likely negative considering the higher jumping off point from Q4 and the slower pace of inventory accumulation in Q1. Note that our Q1 GDP forecast may be subject to revision after receiving durable goods orders report on 27 April."