Second estimate of Q1 US GDP fell 0.7% q/q saar, versus consensus (-0.9%) expectations for a larger downward revision. The composition of the revisions was largely as expected, with net trade dragging growth lower by 1.9pp in the second estimate, versus 1.3pp in the advance release. In addition, inventories now contributed only 0.3pp to growth, versus a more healthy 0.7pp previously. Elsewhere, the revisions were more modest, with stronger equipment (2.7% q/q saar versus 0.1% previously) and residential investment (5.0% versus 1.3% previously) providing an upward contribution to fixed investment. Personal consumption expenditures were revised down to show growth of 1.8% in the quarter, one-tenth lower than in the advance estimate. “Altogether, the second estimate of Q1 US GDP does little to change our view on the state of the US recovery. We believe growth in Q1 has systematically underperformed due to an incomplete seasonal adjustment process that leaves residual seasonality in many investment categories. As a result, we look to other indicators such as payroll growth, the unemployment rate, and the ISMs to get a complementary reading on near-term momentum.” says Barclays in a reportThese data are not consistent with a contraction in GDP, but are, instead, a reflection of a soft patch in activity from adverse weather. This, plus the distortions to trade from the West Coast port strike, led to a noisy signal. Real GDI is more consistent with this view, with this series slowing from 3.7% q/q saar in Q4 to 1.4% in Q1. “We maintain our outlook for 2.5% real GDP growth in Q2. Next week will likely be pivotal in assessing the strength of any rebound, with data on personal spending, construction spending, trade, the ISM manufacturing and nonmanufacturing surveys, and the employment report all scheduled for release. We believe the data will point to an acceleration in economic activity in Q2 and keep the Fed on track for rate hikes beginning in September.” adds Barclays
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