Q4 GDP estimate lowered to +3.0%

Macroeconomic Advisors (MA) has lowered their forecast for Q4 annualized real GDP growth to +3.0% from +3.3%, and is also lowering their Q1 forecast to +1.9% from +2.0%. Although it is probably still too early to raise alarm, it is clearly disconcerting that Q4 now just barely has a "3" handle and Q1 has now lost its "2" handle. Growth below 2% is not exactly a sign of a healthy economy.

 

The bottom line is that the forecast trend has been pointing towards a decelerating economy over the past month. That by itself is not a cause for alarm per se, but unless we see a reversal of that trend over the next one to two months, Q2 could be dicey. None of this in any way tells us what Q2 will be like, but simply that all bets are off.

 

The weekly unemployment insurance initial claims report was disappointing, but one weekly data point doesn't indicate a trend. That will be something else to keep a close eye on. Overall, initial claims have been trending well over the past couple of months.

 

The ECRI Weekly Leading Index was mixed this week, with the weekly data rising nicely, but the smoothed growth rate declining modestly, telling us only that the outlook is still unclear, but with a somewhat negative bias since the smoothed growth rate is still well below zero. Meanwhile, ECRI is still sticking with their call that the U.S. is tipping into a recession.

 

We will definitely keep an eye on the GDP forecast trend over the next six weeks, as well as weekly unemployment insurance initial claims, as we transition from the tail of the holiday sales season and move back into the more normal part of the real economy.

-- Jack Krupansky