There Are Already Signs That US Economic Momentum Is Sputtering Out

It’s very likely that Q1 was one of the best quarters since the recovery.

Several analysts anticipate that GDP will come in over 3%.

But there are already signs of a sputter out.

Yesterday, Dan Greenhaus of BTIG wrote:

First, on Sunday March 17, we took up our Q1 GDP forecast to 2.5%. With new data in hand — specifically Friday’s spending report and today’s better than expected construction report — it now looks like our Q1 GDP estimates have gone radioactive; we now expect the quarter to print solidly above 3.0% if not 3.5%. Secondly is the weaker than expected ISM report. This exacerbates a trend we’ve seen of late where most data points are beating by a smaller percentage related to expectations or outright missing. Economic surprise indices have already turned lower and we repeat; as each of the last several second quarters would attest, this trend bears watching even in the face of optimism.

Today, Nomura’s Lewis Alexander says the same:

Our Q1 GDP estimate is currently tracking 3.3%, with an increase in final sales of 2.0%, and a contribution from inventory accumulation of 1.2 percentage points. Recent economic data, however, have suggested a slowdown in activity as we approach Q2. This lends support to our forecast that there will be a slowdown in growth in Q2 from slower government spending, delayed household adjustment to higher tax burdens, and a smaller increase in inventories. We estimate that US real GDP will grow at an annual rate of 1.4% in Q2, with an increase of 1.2% in final sales.

Alexander posts this chart of the Nomura Economic Surprise Index (which measures economic data against projections) to show that there’s been a slowdown.

surprise index

In today’s note, High-Frequency Economics also talks about the “Spring swoon,” caused by both the sequester and the payroll tax hike.

Nobody’s freaking out too much, and most data’s been fine. But the big theme is: Very strong Q1 followed by a meh Q2.

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