US GDP Growth Remains Set For Moderate Slowdown In Q4

Economic output is still on track to decelerate to a moderately slower pace in the government’s fourth-quarter report on gross domestic product (GDP) due later this month, based on based on the median estimate for a set of nowcasts compiled by The Capital Spectator. Today’s update reflects a slightly firmer gain vs. the previous estimate published two weeks ago.

Today’s median Q4 nowcast ticked up to 2.8% (seasonally adjusted annual rate) from 2.6% in the Jan. 4 update. In other words, the upcoming GDP report from the Bureau of Economic Analysis (assuming it re-opens) that’s scheduled for Jan. 30 appears set to report that growth downshifted for a second straight quarter.

“At the end of last year, there was a particularly sharp downgrade in expectations for the US,” says Goldman Sach’s Peter Oppenheimer. “While there has been a big tightening of policy and financial conditions in the US… we don’t see a recession, but we do see a pretty sharp slowdown,” adding that markets had “got too far into pricing a deeper downturn than we expect.”

Projecting the one-year trend for GDP for the year ahead aligns with Goldman’s outlook. The chart below shows the average forecast for year-over-year changes in output, based on the average estimate via nine models. The main takeaway: US economic activity peaked last year and is set to slow in 2019 – a forecast that’s been a staple for The Capital Spectator for several months – see here, for instance.

Monitoring the US economy in the weeks and perhaps months ahead could be challenging, however, due to the partial government shutdown. There’s never a good time to go dark with economic releases, but the current environment of softer growth threatens to be especially problematic for playing the guessing games on the US macro trend. Challenging or not, there’s no sign that the shutdown will end soon, which means that several key numbers in the coming days will remain a mystery, including tomorrow’s scheduled release of retail sales figures for December.

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