US economic activity is expected to ease in the first quarter, based on the median for a set of nowcasts compiled by The Capital Spectator. The current estimate reflects the softest quarterly gain in over a year, although the anticipated increase is still strong enough to keep the economic expansion alive in early 2020.

Output in the first three months of the year is on track to rise 1.7%, according to the median of eight models reviewed by The Capital Spectator. If correct, economic activity will dip from the 2.1% rise in 2019’s Q4.

Part of the downside bias in the Q1 estimate reflects concerns that the coronavirus outbreak in China is taking an economic as well as human toll. Consider one of the GDP estimates used above – a CNBC survey of economists. The news group reports that “11 forecasters over the weekend finds first-quarter GDP estimates averaging just 1.2%, down nearly a point from the fourth quarter.” But at this point the downturn is expected to be short-lived and “economists see a bounce back to 2% growth in the second quarter, depending on the severity of the virus both in China and in other countries.”

New survey data published by The Wall Street Journal tells a similar tale. “The monthly survey of economists found 83% of economists expected the coronavirus outbreak will have a small impact on US gross domestic product growth from January to March, or less than 0.5 percentage point,” the Journal noted last week. “Just 5% of forecasters expected a significant reduction of more than 0.5 percentage point off the quarter’s annual growth rate, while 10% expected no impact. “

The first official Q1 GDP report will be published in two months (Apr. 29), which is a reminder that nowcasting the current quarter is still subject to a high degree of uncertainty. The biggest risk factor at the moment, and arguably the biggest source of uncertainty, is related to the coronavirus and how much it squeezes economic activity.

An early hint of things to come is found in the announcement by Apple Inc. that it will fall short of this quarter’s sales target due to the coronavirus, which has shuttered large portions of China’s manufacturing sector. “Maybe this is the wake-up call. I would be astonished if Apple is the only one,” says Stacy Rasgon, an analyst at Bernstein. “Every electronic supply chain runs through China in a big way.”

Forward estimates of one-year changes for US GDP also anticipate a slowdown. Year-over-year growth in GDP is expected to slip to 2.1% in the first three months of 2020 vs. the year-earlier quarter. The trend is expected to continue easing as the year unfolds, based on The Capital Spectator’s average estimate from a set of combination forecasts. 

Some economists, however, still favor a relatively upbeat outlook. Last week’s review from Wells Fargo, for instance, reminds that retail spending in the US increased for a fourth straight month in January. The latest gain highlights “the resiliency of the US consumer,” the bank advises.  “The US economy remains firmly on its expansion path, yet we are mindful of the risks to the outlook, including the ongoing coronavirus threat.”