We expect that the initial estimate of U.S. gross domestic product for the first quarter, to be released Thursday, will show 6% growth, which is somewhat below the Bloomberg consensus of 6.8%.
A wider-than-anticipated trade deficit, which we expect to subtract 1.5% from overall growth, and a weaker-than-expected inventory accumulation that includes a sharp drop in motor vehicle inventories, resulted in the reduction of our initial forecast of 6.2% down to 6%, with risk of a modestly slower pace of growth in the first estimate.
But that inventory drag in the first quarter will quickly turn into support of overall economic activity in the second quarter, which underscores our forecast of 10.7% growth.
The primary catalyst for first-quarter growth will be the robust expansion in household spending, which will most likely have a 10% or greater increase during the first three months of the year.
The Census Bureau indicated that the control group inside the retail sales category, which the Bureau of Economic Analysis uses to calculate the household spending estimate and accounts for roughly 23% of total overall spending, increased by 26.3% on a seasonally adjusted annualized rate in the first quarter.
There will be a solid, though modestly slower, pace of residential investment compared to the robust growth in last year’s fourth quarter.
For this reason, the estimates of outlays on services, durables and non-durables are likely going to be the swing factor between our more modest estimate of growth and the consensus 6.8% forecast.
Without a doubt, investors will observe another quarter of strong gross private investment underscored by a significant expansion of productivity-enhancing investments in intellectual property, software and equipment.
In addition, there will be a solid, though modestly slower, pace of residential investment compared to the 36.6% posted during the final quarter of last year.
That slower pace was affected by the winter weather that gripped the nation in February and should be expected to rebound strongly in the current quarter.
Forward-looking data on housing permits imply a annualized rate of better than 1.7 million starts, which is well above the long-term equilibrium of 1.5 million.
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