US Economy Still Expected To Expand At Moderate Pace In Q1

The coronavirus is weighing on economic estimates around the world and it’s likely that the US will eventually feel some of this pain. The degree of the macro price tag for America remains a guessing game at this point. As a baseline, we can monitor how the first-quarter nowcasts evolve in the days and weeks ahead. On that front, the latest numbers point to a slightly softer increase in output for Q1 vs. the previous quarter.

US growth is on track to increase 1.9% in the first three months of 2020, according to the median nowcast for eight models monitored by CapitalSpectator. That current estimate is up a bit from the previous outlook for a 1.7% gain, published earlier this month.

A 1.9% rise in Q1 growth, if correct, would mark a fractionally slower pace in the economic expansion vs. Q4’s 2.1% advance. But in the current environment, economic growth that holds near the recent trend would be welcome. The question, of course, is whether the macro trend can maintain a moderate pace as the coronavirus spreads to countries around the world, including the US?

Richard Clarida, the vice chairman at the Federal Reserve, said in a speech on Tuesday (Feb. 25) that the COVID-19 outbreak that appears to becoming a global pandemic could affect the US economy at some point. “But it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook,” he advised.

Meanwhile, warning signs are flashing in some corners, including recent sentiment data. Notably, the preliminary estimate of the US Composite PMI, a GDP proxy, fell in February, indicating a mild economic contraction—the first negative print for the index since 2013. “Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders,” said Chris Williamson, chief business economist at HIS Markit.

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