Goldman hacks its Q1 GDP forecast because of the weather

Goldman Sachs has reduced its forecast for US GDP growth in the first quarter because of the brutal winter.

In a note Friday, Goldman’s Kris Dawsey said the bank has reduced its estimate by two-tenths to +2.8%:

Overall, it appears likely that the weather will again be a drag on Q1 GDP growth, although by significantly less than last year. A very simple forecasting model of real GDP growth which takes into account momentum and reversion effects, augmented with weather variables, would suggest that the drag could potentially be as much as half a percentage point (compared with about a full percentage point in Q1 of 2014).”

Near-record snowfall in parts of the East Coast including Boston is likely to have a bigger impact than the freezing temperatures, Dawsey wrote.

The worst of the this year’s major storm fell outside the reference weeks for the January and February jobs reports. However, January retail sales likely posted a huge miss due to the weather, plunging 0.8% month-over-month.

Last year’s polar vortex in Q1 was largely seen as the cause of the 2.9% decline in GDP.

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