Nomura Forecast: Q1 GDP at 1.0%

From economists at Nomura: US Q1 GDP: It will likely show that final sales barely grew, but April data should be better.

Adverse weather conditions, West Coast port disruptions, the stronger dollar and the decline in crude oil prices all likely hurt economic activity in Q1 2015. Business investment slowed considerably as oil and gas exploration projects halted abruptly and precipitously on lower crude oil prices while manufacturing activity was additionally hurt by the stronger dollar. Also, we believe that lower gasoline prices failed to spur consumer activity as it appears that households decided to save or pay down debt using the extra money saved from lower gasoline prices. Furthermore, adverse weather conditions likely hurt consumer and construction activity. Taken together, we expect headline Q1 GDP to grow by 1.0% q-o-q on an annualized rate with final sales increasing by only 0.1%.

However, there are two key sources of uncertainty worth noting. First, the Bureau of Economic Analysis (BEA) will only have the first two months of trade data on hand and will have to make some assumptions for March. This is in no way different from other years. However, due to West Coast port labor disputes, trade activity slowed considerably in the first two months of the year. BEA’s assumptions on how quickly trade activity rebounded will have a notable impact on topline GDP. Second, our work suggests that there is material residual seasonality in topline GDP in Q1 as it tends to be below trend due to strong seasonal patterns in defense spending. As such, we now expect government expenditures to be more of a drag than we had previously assumed. Nevertheless, this factor remains a key source of uncertainty.