US: Weak Q1 GDP growth to be transitory - Nomura

Analysts at Nomura expect the advance estimate of US Q1 real GDP growth to come in at 1.6% q-o-q saar, the first sub-2% estimate since Q1 2017.

Key Quotes

“Weak Q1 spending data stand in contrast to elevated consumer and business sentiment and the 202k average gain per month in nonfarm payrolls. Thus, we expect weak Q1 GDP growth to be transitory as fiscal stimulus will soon kick in. Even after the slowdown in Q1, we still expect 2018 real GDP growth to register 2.7% as a whole.”

“Much of the softness can be attributed to a pullback from the sharp pickup in Q4 spending for recovery efforts following major hurricanes. Weaker-than-expected incoming data point to soft momentum in Q1 personal consumption expenditure while some of the weakness may have been due to delayed arrival of tax refunds relative to historical trends.”

“Despite a relatively weak Q1, we expect renewed momentum in equipment investment in the near term. Factory output excluding autos fell in March but the decline was likely transitory as tax policy changes, including favorable expensing provisions, combined with synchronized global growth will likely provide support for business investment.”

“However, a material escalation in trade tensions could dampen sentiment significantly and adversely affect business investment plans. Although incoming business surveys point to continued expansion, some forward-looking indicators for April – specifically the Empire State survey – declined notably, consistent with increased trade concerns.”

“Wage growth was steady in the first three months of the year. We expect a steady 0.6% q-o-q increase in the wages and salaries component of the Q1 employment cost index (ECI), bringing the y-o-y rate down to 2.4%. For total ECI including benefits, we expect a reading of 0.7% q-o-q (2.6% y-o-y), partly boosted by one-time bonuses following the tax bill.”

“A jump in multifamily housing starts in March muddled an otherwise soft reading for single-family units. Given our relatively pessimistic outlook on multifamily housing, we think the softness in single-family starts and permits in March bears monitoring.”