Photo: Flickr / Mikey Angels
We’ll get our first look at first quarter GDP growth today.85 analysts polled by Bloomberg are expecting that growth will sink from 3 per cent in the fourth quarter of 2011 to 2.5 per cent in Q1, but those estimates skew slightly to the upside, and there’s a large diversity of opinions.
They also expect that personal consumption will rise by 2.3 per cent, indicating continuing strength in consumer spending. Prices are also expected to rise, with core PCE rising at a rate of 2.1 per cent quarter over quarter.
Analysts from Nomura and Deutsche Bank both predict that headline real GDP growth will equal 2.8 per cent, but DB’s Joe LaVorgna point out that the breakdown of GDP growth will be particularly important:
The mix in growth will be just as important to investors as the headline GDP figure, which incidentally will be susceptible to revision three more times this year—in May and June with the preliminary and final revisions and then in July with the annual revisions. We expect final sales, defined as GDP less inventories, to rise 2.5% in the quarter, up from +1.1% previously. Final sales to private domestic purchasers, our preferred measure of underlying domestic demand, is predicted to rise +3.0%, up from +2.4% previously…Finally, we expect the GDP deflator to rise +2.2%, which is important because it implies a +5.0% increase in nominal GDP growth in the quarter, the highest reading since Q2 2010 (+5.4%). A rising top line is positive for corporate profits and suggests that monetary policy is finally gaining traction, because it would imply an ever widening spread to the near zero nominal fed funds rate. Remember, too, that +2.8% Q1 real GDP growth, if maintained for the year, would be near the top end of the Fed’s revised GDP forecasts. This hardly constitutes a boom, but relative to the scepticism we have encountered from investors on the sustainability of the US expansion, it should be greeted constructively. The economy is not booming, but the current expansion is looking increasingly more sustainable.