Tags: atlanta | fed | gdp | growth | zero

Atlanta Fed Slashes GDP Growth Prediction to Near Zero

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(Weerapat Wattanapichayakul/Dreamstime)

By    |   Monday, 11 March 2019 03:06 PM EDT

The U.S. economy will barely grow in the first quarter, based on data on domestic construction spending in December released on Monday, the Atlanta Federal Reserve’s GDPNow forecast model showed.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2019 is 0.2 percent on March 11, down from 0.5 percent on March 8.

After Monday morning's retail sales report from the U.S. Census Bureau, the nowcast of first-quarter real personal consumption expenditures growth declined from 1.5 percent to 1.0 percent.

The next GDPNow update is Wednesday, March 13. 

Meanwhile, Barclays economists on Monday revised lower their projection on U.S. economic growth in the first quarter to 2.0 percent from a prior estimate of 2.5 percent following the release of the government’s retail sales report for January, Reuters reported.

“The January retail sales report was a touch better than expectations,” they wrote in a research note. “However, further downward revisions to December’s data came as a surprise to us, and point to a slower momentum in consumption spending heading into Q1.”

The revisions came hours after the government said U.S. retail sales unexpectedly rose in January, lifted by an increase in purchases of building materials and discretionary spending, but receipts in December were much weaker than initially thought.

The report from the Commerce Department on Monday was welcome news for the economy after a raft of weak December data, as well as a sharp moderation in the pace of job growth in February.

Still, January’s increase in retail sales recouped only a fraction of December’s plunge, leaving expectations for a sharp slowdown in economic growth in the first quarter intact, Reuters reported.

“Sales managed only a tepid reversal in January from December’s deep freeze,” said Douglas Porter, chief economist at BMO Capital Markets in Toronto. “While we expect some further comeback in the next couple months, the big story is that the economy’s big engine is cooling.”

Retail sales rose 0.2 percent. Data for December was revised down to show retail sales dropping 1.6 percent instead of tumbling 1.2 percent as previously reported. The drop in December was the biggest since September 2009 when the economy was emerging from recession.

Economists polled by Reuters had forecast retail sales to be unchanged in January. Sales in January increased 2.3 percent from a year ago.

The January retail sales report was delayed by a 35-day partial shutdown of the federal government that ended on Jan. 25. February’s retail sales report, which was scheduled for publication on Thursday, will be released on April 1.

Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 1.1 percent in January after a downwardly revised 2.3 percent plunge in December. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

They were previously reported to have decreased 1.7 percent in December. The downward revision to December core retail sales could have an impact on the government’s fourth-quarter gross domestic product estimate.

The government reported last month that the economy grew at a 2.6 percent annualized rate in the last three months of 2018.

However, December reports on the trade deficit and construction spending have led economists to believe the fourth-quarter GDP growth estimate would be revised lower when the government publishes its revision later this month.

Growth estimates for the first quarter are below a 1.5 percent pace. The government reported last Friday that the economy created only 20,000 jobs in February, the fewest in nearly 1-1/2 years.

Slowing job and economic growth support the Federal Reserve’s “patient” approach toward further interest rate hikes this year.

Fed Chairman Jerome Powell reiterated the U.S. central bank’s stance on Sunday in a wide-ranging interview with CBS’s 60 Minutes news show. Powell said the Fed did “not feel any hurry” to change the level of interest rates again..

The dollar was trading slightly lower against a basket of currencies. U.S. Treasury prices fell, while stocks on Wall Street were mixed.

In January, online and mail-order retail sales increased 2.6 percent, the biggest gain since December 2017. Sales at building material stores increased 3.3 percent, the most since September 2017. But receipts at auto dealerships tumbled 2.4 percent in January, the largest drop since January 2014, after gaining 0.3 percent in the prior month.

Receipts at service stations fell 2.0 percent reflecting cheaper gasoline prices. There were also declines in sales at clothing and furniture stores, as well as electronic and appliance shops.

Discretionary spending rose in January, with sales at restaurants and bars advancing 0.7 percent and purchases at hobby, musical instrument and book stores jumping 4.8 percent, the largest increase since January 2013. Sales at food and beverage stores gained by the most since April 2016.

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The U.S. economy will barely grow in the first quarter, based on data on domestic construction spending in December released on Monday, the Atlanta Federal Reserve’s GDPNow forecast model showed.
atlanta, fed, gdp, growth, zero
Monday, 11 March 2019 03:06 PM
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