Upward GDP Revision Shouldn't Raise Investor Hopes
A revision in first-quarter GDP from pathetic growth to merely bad is no sign that the economy is picking up steam.
The GDP report for the first quarter was revised upward from a meager 0.7% to a merely soft 1.2% this week. The good news is that the higher growth rate will make it mathematically easier to hit our 1.75%-2.0% growth forecast for 2017.
But the widely anticipated rebound in the second quarter might be smaller than previously believed. GDPNow from the Atlanta Fed used a combination of trend line and recently released actual data to predict GDP growth of a whopping 3.7% for the second quarter. Still, that is down from last week's 4.3% forecast and is likely to fall further with the release of motor vehicle sales (which are likely to be flat between April and May) and next week's consumption report. We are sticking with our second-quarter forecast of 2.5%-3.0% sequential annualized growth and 1.75%-2.0% for the full year, both lower than consensus estimates.