Early Estimates Point To Ongoing Slowdown For US Q1 GDP Growth

Preliminary nowcasts for US economic growth in the first quarter suggest that the slowdown in 2018’s second half will continue, based on a set of estimates compiled by The Capital Spectator. The degree of the deceleration remains open for debate, of course, in part because it’s still early in the current quarter. In addition, survey data for February reflect a pickup in growth in the services sector, which may be an early clue that the macro trend is firming up.

Meantime, the latest estimates for gross domestic product (GDP) for Q1 point to another round of deceleration. The median nowcast for this year’s first three months is a sluggish 1.4% increase (based on the seasonally adjusted annual rate). If correct, the US economy is on track to post a softer growth trend for the third straight quarter.

It’s reasonable to treat the current Q1 estimates cautiously at this stage, in part because survey data for February hints at the possibility that growth may be picking up. The US Composite PMI Output Index edged up to a moderately strong 55.5 in February, a seven-month high, IHS Markit reported yesterday. (A reading above the neutral 50 mark reflects growth.)

“The US PMI surveys tell a tale of two economies in February, with any slowdown story confined to the goods-producing sector,” says Chris Williamson, chief business economist at IHS Markit. “While manufacturing struggled, with the surveys consistent with a near-stalling of factory output and order books, the service sector remained encouragingly resilient, enjoying its strongest burst of activity for seven months.”

Using the Composite PMI as a guide implies that US GDP growth in the first quarter is on track for a 2.6% gain, Williamson advises – well above the median 1.4% nowcast via the models cited above.

Monitoring the GDP trend on a year-over-year basis also paints a brighter outlook for Q1. The average for a set of combination forecasts reveals that the point forecast for this year’s annual Q1 increase will more or less hold steady at a moderately strong 3.1% pace before easing later in the year.

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