Original post: We’re going to give you a few minutes to answer the question.Then we’ll post the answer here as well as the note in a few minutes.
Enter your guesses in the comments.
Update: Originally we asked you which bank sent out a note saying that despite the weak durable goods number, it wasn’t lowering its GDP estimate.
Commenter Steve got it right. It was Joe LaVorgna at Deutsche Bank.
Here’s the note:
Even though yesterday’s durable goods report was weaker than what we had expected, we are staying for now at +3.8% on Q1 GDP. We are maintaining our estimate for three reasons: One, more than half of the current quarter’s projected GDP growth rate is coming from inventory restocking, and the durables data was strong in that regard: durable inventories rose 0.9% in February, the second such gain in a row. At the moment, we only have one full month’s worth of inventory data (January) so there is a lot that economists do not know about the quarter. However, as the chart below shows, the recent surge in the ISM survey strongly suggests we will see a noticeable inventory rebuild this quarter. Two, it is the core shipments number that is used to estimate the capital spending numbers in the GDP accounts, and core shipments eked out a decent gain (+0.8%) in the month. The level of February core shipments is up 2.4% annualized relative to its Q4 2010 average. Third, and most importantly, more of what is used to estimate capital spending in the GDP accounts comes from the Fed’s industrial production release than the durable goods data. The February level of industrial production for computers and electronic components is up at a 20% annualized gain relative to its Q4 average. Taken together, we are assuming 12% growth in capex in the current quarter compared to an average quarterly change of 17% in 2010. We will revisit our capex forecast following this afternoon’s release of the annual industrial production revisions.
The final revision for Q4 real GDP is unlikely to elicit much of a market response, but it is worth noting that Q4 corporate profits will be available with this morning’s release. Since the recession ended in Q2 2009, profits have grown at a 30% annualized rate, one of the fastest rebounds on record. However, we expect some payback in Q4, with profits expected to grow at a 5% annualized pace. Provided that oil prices do not rise substantially further from here—we will worry when prices top $125 per barrel—the recovery in profits bodes well for hiring. On this score, initial jobless claims appear to have convincingly broken the 400k barrier, averaging 385k over the month—a significant, positive for the job market.