It looks like the economy nearly shrank in the first quarter.
On Friday, the Commerce Department released data on February wholesale inventories, which showed that they fell by a more-than-expected 0.5%. This was the biggest month-on-month drop in nearly three years.
The updated data on January showed that wholesale inventories actually contracted in that month, by 0.2%, from a prior estimate of 0.3%.
The part of inventories that feeds directly into the GDP, which counts stock excluding autos, fell 0.4%.
After Friday’s report, several economists lowered their expectations for first-quarter Gross Domestic Product (GDP).
As Deutsche Bank chief economist Peter Hooper and team explained recently in a note, the ratio of private inventories to final sales surged late last year to a six-year high.
“A full reversal of this run-up in the quarters ahead with final sales advancing only modestly could be a substantial drag on US GDP growth, amounting to as much as 1 percentage point,” they forecast.
Notably, the Atlanta Fed’s GDPNow tracker, which nailed the print for Q1 GDP a year ago, cut its estimate to 0.1% from 0.4%.
“After this morning’s wholesale trade report from the U.S. Bureau of the Census, the forecast for the contribution of inventory investment to first-quarter real GDP growth fell from — 0.4 percentage points to — 0.7 percentage points,” the Atlanta Fed explained in its update.
On Wall Street, JP Morgan economist Daniel Silver lowered his estimate for Q1 GDP to 0.2%, with inventories expected to subtract 0.6 percentage points from growth.
Also, Barclays lowered its forecast to 0.3% from 0.4%, and Goldman cut its estimate to 0.9% from 1.2%.
The first estimate of Q1 GDP is due on April 28.
It will be revised three times within the following four weeks.