The BEA’s first estimate of Q1 GDP figures put growth at just 0.2%. The revisions are likely to show that the economy contracted by 0.7% annualized, marking an even weaker start to the year since previously thought. Trade is responsible for the bulk of the downward adjustment.In the advance report, net exports shaved 1.2% from Q1 growth, however the latest data on international transactions suggests that the drag exceeded 2.0%. The inventory contribution is also likely to be marked down, reducing Q1 growth by a further 0.2%. A number of studies have recently brought to light the possibility of residual seasonality distorting GDP data. For example, the San Francisco Fed estimated that this statistical distortion reduced the reported Q1 GDP figure by 1.6%. The BEA has acknowledged the issue and is investigating improvements to the seasonal adjustment methods which could be incorporated during the annual revision schedule for July 2015. Nonetheless, even after adjusting for residual seasonality, Q1 growth was very soft. Pre-revisions, the adjustment would have put Q1 GDP at 1.8%; however, after the revision the adjusted estimate of Q1 growth is likely to stand around 1%, notes Societe Generale. The more critical question for investors is the magnitude of the Q2 rebound. Early activity data for April has been disappointing and suggests poor momentum at the start of the quarter. For example, the GDP Now tracking estimate from the Atlanta Fed currently puts Q2 GDP at just0.7%. Analysts remain more optimistic and look for growth in excess of 3%, but acknowledge that reaching this ambitious target will require a significant rebound in consumer spending in May and June, says Societe Generale.
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