Q1 Advance GDP Preview
Advance Q1 GDP is expected at 0.2% (median 0.5%) from 0.6% the previous quarter. Real Consumption is expected to increase 0.5% after increasing 2.3% in Q4. Fixed investment is expected to decline 11% thanks to an expected 29% drop in residential construction.
The GDP Chain Price Index is expected to increase 3.1% in Q1 from 2.4% in Q4, the PCE Chain Price Index is expected at 3.5%, and the PCE-Core Chain Price Index is expected at 2.1%.
Personal Consumption, the largest GDP component, is expected to increase 0.5% in Q1, which would be the smallest percentage increase since Q1 ’95. Weakness in manufacturing over the period should put a drag on durable goods, which are expected to fall 5.8%. That would be the first decrease since Q4 ’05.
Non-durable goods, which have consistently provided a positive contribution to GDP, are expected to fall 1.6%. Services, expected at 3.2%, are expected to mitigate declines in US manufacturing and keep the Personal Consumption component of Q1 GDP in marginally positive territory. Final Sales are expected to fall 0.4%.
Q1 GDP faces considerable downside pressure from the expected 11% decline in fixed investment spending. Residential construction is expected to fall 29%, non-residential construction is expected to fall 6%, and equipment and software spending is expected to fall 2%. Over the past year, increases in non-residential spending have reduced the impact the fallout residential construction; however this no longer appears to be the case as nearly all fixed investment components are expected to show extensive declines in Q1.
Net exports, inventories and government spending are expected additions to Q1 GDP. Net exports are expected to add roughly $18bln as declining USD value has boosted export demand while reducing the appeal of imports. Inventories are expected to add $34bln to Q1 GDP following an unexpected $48.9bln decline in Q4. The sharp reduction in Q4 inventories, reflecting a year-end liquidation, leaves little room for further declines especially when new-year products enter the mix. Government spending is expected to increase 1% in Q1 following a 2% increase in Q4.
The Q1 GDP Price Index is expected at 2.9% from 2.4% in Q4 thanks to continued USD deterioration and surging commodity costs.
While marginal Q1 growth is expected, a closer look at the data may reveal a more unsettling outlook for the US economy as downside factors including extensive declines in manufacturing and fixed investment appear to outweigh rather dubious upside risks, including a build in inventories as a result of declining sales and a increase in exports as a result of the falling USD.