Following the release of worse-than-expected retail sales data this morning, market economists are slashing tracking estimates for GDP growth in both the fourth quarter of 2013 and the first quarter of 2014.
“Alongside the weaker-than-expected print in January, downward revisions to core retail sales growth in December (to 0.1% month-over-month from 0.7%) and November (to 0.1% from 0.4%) suggest notably softer growth in Q4 consumption than initially estimated,” says Peter Newland, an economist at Barclays.
“This subtracted 0.4 percentage points from our tracking estimate, which now stands at 2.2%, a full percentage point below the first official release.”
Table 1 shows how the Barclays economics team’s Q4 2013 GDP tracking estimate has fallen in recent days. December U.S. trade data revealed a wider deficit than expected, taking the estimate down to 2.8% from 3.2%. December wholesale inventories growth was below expectations as well, whittling down the estimate by another 0.2 percentage points, and today’s retail sales release saw it cut another 0.4 percentage points to 2.2%.
Credit Suisse economists, meanwhile, are reducing Q1 2014 GDP forecasts.
“Our Q1 GDP estimate is currently 1.6%, down from our previous estimate of 2.6%,” says Credit Suisse chief economist Neal Soss.
“The revision reflects recent soft employment and PMI data, bad weather, and lower assumptions for inventory building. This morning’s retail sales figures were also much weaker than expected, and lowered our baseline estimates further.”
Paul Dales, a senior U.S. economist at Capital Economics, says today’s retail sales release “gets the first quarter off to a slow start.”
“Some of the weakness is probably due to the unusually severe weather,” says Dales.
“But even after pencilling in strong spending on heating and a rebound in retail sales in February and March, first-quarter annualised consumption growth may be between 2.0% and 2.5%. That would be down from just over 3% in the fourth quarter.”
Now, as Neil Dutta, head of U.S. economics at Renaissance Macro points out, the numbers aren’t all adding up.
“We economists are falling over ourselves revising down our Q4 and Q1 GDP ‘bean-count’ estimates,” says Dutta.
“However, let’s not forget that these downward revisions to Q4 actually widen the gap between GDP and aggregate hours. Let us explain. At present, Q4 GDP is tracking 2.4% down from the initial estimate of 3.2%, a sharp cut. However, aggregate hours in Q4 were revised up because of stronger job growth. Indeed, aggregate hours expanded 1.9% in Q4. Meanwhile, business productivity rose 2.6%. Combining the two — total hours plus output per hour — implies that growth rose 4.5% in Q4. Something has to give. Either GDP goes up, aggregate hours fall, or productivity contracts.”
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