Will First Quarter Economic Growth Turn Negative?

The GDPNow estimate for first quarter economic growth has undergone a significant revision, dropping from +3.9% on February 3 to -2.8% on March 3, with a minor recovery to -2.4% by March 6.

This running estimate for GDP is released by the Atlanta Fed, and while it’s not their official forecast, it does reflect economic data released in the quarter thus far.

The estimates for first quarter GDP first turned negative on Friday, February 28, as growth projections were reduced from +2.3% to -1.5%. The guidance cited concerns about the widening trade deficit and the weaker consumer spending (-0.2%) that was seen in the most recent Personal Consumption Expenditures (PCE) report.

Growth projections were then further reduced on Monday, March 3, as data from the Census Bureau showed a drop in construction spending while the Institute for Supply Management reported weaker-than-expected U.S. manufacturing activity. We did see a slight improvement in updated estimates released on March 6, from -2.8% to -2.4% after updated trade data and improved investment outlooks. Currently, the next estimate is expected on Monday, March 17.

These projections are published regularly throughout the quarter as additional data is released, and they can be quite volatile. However, if this trend continues the Fed will not be able to ignore a negative GDP print, given that GDP functions as a scorecard for the country’s economic health.

Bottom line: A negative GDP reading could cause the Fed to change their tune on rate cuts, resuming them sooner than previously expected to help spur economic activity. Additionally, slower growth helps inflation and mortgage rates move lower.

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By Shelly Williams