PPI-FD Falls The Most Since August 2016

PPI-FD - Q4 Will Be Solid, While Q1 Growth Is Unpredictable

It’s interesting to see the dichotomy between Q4 2018 GDP growth and Q1 2019 growth. Q4 2018 seems like an easy to predict quarter while Q1 2019 looks like a mess because of the government shutdown.

As you can see from the table below, the estimates for Q4 GDP growth are all very similar. It’s rare to see such close estimates.

Lately, the NY Fed’s forecast has been very pessimistic, while the St. Louis Fed’s forecast has been very optimistic. They differ by very little as of January 11th. At this point in the quarter, the Atlanta Fed GDP Now reading is very accurate. It’s highly likely the initial GDP report shows growth between 2.5% and 3%.

Economic growth slowdown is very easy to see as Q2 growth peaked at 4.2%, Q3’s growth was 3.4%, and Q4’s growth is about to be around 2.8%.

(Click on image to enlarge)

Q1 GDP growth is likely to be below Q4’s growth rate which means the slowdown trend will continue. There isn’t much economic data from this quarter yet. We have the headwinds which are the end of the benefit of the tax cut and the global slowdown that’s clear in Europe and China.

Industrial production was down 3.3% year over year in Europe which is the largest decline since December 2012. That was the end of the European recession in 2011-2012.

As of January 11th, the NY Fed’s Q1 2019 GDP growth Nowcast is only 2.11%. This doesn’t even include the weakness caused by the government shutdown.

If the shutdown hurts GDP growth by 0.15% per week and it lasts 3 weeks, the current Nowcast should show growth of only 1.66%.

PPI-FD - Bulls will say this is a temporary weakness. 

This could be a relatively weak report compared to the past few quarters which is made much worse by a one-time event.

Personally, I’m betting the shutdown ends before government employees, who are working without pay, are set to get paid again.

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