Sy Harding: Here is what we know. The economy has been slowing since last fall, when the impressive 3rd quarter GDP growth of 4.1% slowed to only 2.6% in the fourth quarter.
The report that it unexpectedly plunged to only 0.1% in the first quarter of this year was a surprise to Wall Street and economists. The further revision a couple of weeks ago to negative 1.0%, was a shock.
However, markets remained calm, given the assurances that the economy would rebound sharply in the 2nd quarter.
Here is what we can surmise.
The downward revisions for the first quarter have not ended.
More data is now available. The U.S. trade deficit widened further in March than previously thought, consumer spending on healthcare was lower than previously estimated, and the housing and construction industries were more depressed than previously thought.
With that new information, forecasts for the final revision to 1st quarter GDP (to be released June 25) are coming down sharply, expectations now for another substantial downward revision.
New forecasts of 1st quarter GDP:
· Goldman Sachs: -1.9%
· Deutsche Bank: – 1.5%
· UBS: -2.0%
· Barclay’s: -2.0%
· Macroeconomic Advisers: -2.1%
However, all the data is now in for the first quarter, so that should be it.
Here is what should worry us now.
Two straight quarters of negative GDP is defined as a recession. Wall Street and the Fed assure us of a substantial rebound this quarter. However, they did not expect the 4th quarter slowdown. And while anticipating a significant weather-related slowdown in the first quarter, they expected GDP growth to remain positive, slowing to no worse than 1.2% growth.
Can we blindly trust their optimism for a second quarter rebound?