US Economic Growth Is Expected to Remain Modest in the First Quarter
Meantime, US economic growth in Q1 is expected to remain modest.
If you’re looking for an optimistic forecast for the government’s first-quarter GDP report that’s due next month, the New York Fed’s model is just the ticket. The bank is currently projecting that US output will expand 3.0% in Q1 (as of Mar. 24), sharply up from Q4’s 1.9% increase. But optimism is an outlier these days. Projections from other sources suggest that Q1 growth will remain more or less unchanged from the sluggish pace in last year’s final quarter.
Let’s start with The Wall Street Journal’s survey of economists for this month – the average forecast is 1.9% growth for Q1, unchanged from the previous quarter and down from last month’s estimate.
Markit Economics is projecting that growth will decelerate a bit to 1.7% in Q1. “The US economy shifted down a gear in March,” says Chris Williamson, chief business economist at IHS Markit. “A slowing in the pace of growth signaled by the PMI surveys for a second straight month suggests that the economy is struggling to sustain momentum.”
Sign up for our Newsletter & get the FREE eBook
Retirement Day Trader:
How to Sell Weekly Options for Steady Income
The US stock market appears to be factoring in a downgrade in growth expectations. The S&P 500(NYSEARCA:SPY) yesterday (Mar. 27) closed at its lowest level since mid-February.
Some analysts say that the market’s softer tone in recent weeks reflects a reality check with regards to formerly high-flying expectations that the Trump administration would easily and quickly ramp up economic growth with policy changes.
“Much of the stock market rally since Election Day appeared to be based on the expectation that the president’s legislative agenda would face smooth sailing,” notes Mark Hamrick, senior economic analyst at Bankrate.com. But last week’s defeat of legislation to overturn Obamacare delivered a setback. “So far, investors seem to have taken the rocky reception to the health-care (NYSEARCA:XLH) legislation effort largely in stride. Even so, the moon shot for stock prices seen since early November was already due for a timeout before these latest developments,” Hamrick said.
But the optimists haven’t given up. The next opportunity for pro-growth legislation is tax reform. A pair of economists who generally support the Trump administration’s economic proposals outlined a rosy future via remarks on Monday at a financial conference in Hong Kong.
“I actually think if you have fundamental tax reform you could raise US growth by half a percentage point,” predicted Glenn Hubbard, an economics professor at Columbia University and a former chairman of the Council of Economic Advisors in the George W. Bush administration.
Speaking at the same conference, Stanford’s Professor John Taylor painted a rosy outlook once deregulation efforts take hold. “The regulatory constraints have been a big factor in the slower growth of the US economy,” he advised.
Perhaps, but deregulation’s powers to boost the macro trend will take time to filter down into the economy – assuming, of course, that the White House can figure out how to engineer legislative victory on the matter of tax reform.
Meantime, US economic growth in Q1 is expected to remain modest. The risk of a recession is still low, but most forecasts continue to assume that the economic slowdown in last year’s fourth quarter will spill over into 2017.