29 Apr 2016
U.S. GDP Q1 reviewed: slowdown in momentum - Nomura
Analysts at Nomura offered a full review of the U.S. Q1 GDP.
Key Quotes:
"Q1 GDP grew by 0.5% q-o-q, slightly below expectations (Nomura and Consensus: +0.7%)."
"The details of the report point to a slowdown in domestic economic momentum from Q4, with real final sales growth decelerating to 0.9% q-o-q from 1.6% previously. On the details, business fixed investment declined by 5.9%, a larger decline than the 3.6% drop we had expected.
Structures investment declined for the third consecutive quarter, falling by 10.7%. Within structures investment, business spending on mining exploration, shafts, and wells dropped by a significant 86.0% in the quarter. Investment in equipment lost steam for the second straight quarter, declining by 8.6% in Q1 after a smaller 2.1% decline in Q4. Notably, spending on intellectual property products remained weak, rising by only 1.7% following declines in the prior two quarters. Net trade continued to drag on growth in Q1, subtracting 0.3pp from the Q1 GP headline number, more than we had expected (-0.1pp).
Exports, as expected, declined by 2.6% in Q1, falling for the second consecutive quarter as global demand and a strong dollar hurt demand for US goods. Imports posted a slight 0.2% increase in the quarter, primarily due to imports of services, which rose by 1.9%. Imports of goods, on the other hand, continued to fall, declining by 0.7%.
The weakness in goods imports could signal continued tepid demand from the industrial sector. The bright spot of this GDP report was residential fixed investment, which increased by 14.8%, well above our forecast for an 8.2% increase and the highest increase since Q4 2012. The acceleration was due to investment in other structures (including home improvements and brokers’ commissions from home sales), which surged by 17.2% after rising by 7.4% in Q4. Spending on permanent site structures (includes single-family and multifamily construction) slowed to a still-solid 12.2% increase after rising by 13.7% in Q4. Personal spending was slightly above our forecast of 1.8%, coming in at 1.9%, but still slower than the 2.4% increase in Q4.
Data have broadly shown a slower pace of consumer activity in Q1, which is somewhat surprising given that labor markets and incomes continue to improve and consumer sentiment remains high. That said, if personal spending turns out to have been stronger in the later months of Q1, it would create a favorable jumping off point for personal spending in Q2. (Monthly personal spending data will be released tomorrow.)
Elsewhere, government spending was also a bit above our expectations as federal government spending fell by less than we expected. Inventory investment subtracted 0.3pp from growth, slightly less than we had expected (-0.4pp).
Firms have slowed their pace of inventory investment for the past three quarters, adjusting to the failure of demand to meet expectations. This inventory correction is likely nearing completion, so we may see less of a drag from this component in the coming quarters."
Key Quotes:
"Q1 GDP grew by 0.5% q-o-q, slightly below expectations (Nomura and Consensus: +0.7%)."
"The details of the report point to a slowdown in domestic economic momentum from Q4, with real final sales growth decelerating to 0.9% q-o-q from 1.6% previously. On the details, business fixed investment declined by 5.9%, a larger decline than the 3.6% drop we had expected.
Structures investment declined for the third consecutive quarter, falling by 10.7%. Within structures investment, business spending on mining exploration, shafts, and wells dropped by a significant 86.0% in the quarter. Investment in equipment lost steam for the second straight quarter, declining by 8.6% in Q1 after a smaller 2.1% decline in Q4. Notably, spending on intellectual property products remained weak, rising by only 1.7% following declines in the prior two quarters. Net trade continued to drag on growth in Q1, subtracting 0.3pp from the Q1 GP headline number, more than we had expected (-0.1pp).
Exports, as expected, declined by 2.6% in Q1, falling for the second consecutive quarter as global demand and a strong dollar hurt demand for US goods. Imports posted a slight 0.2% increase in the quarter, primarily due to imports of services, which rose by 1.9%. Imports of goods, on the other hand, continued to fall, declining by 0.7%.
The weakness in goods imports could signal continued tepid demand from the industrial sector. The bright spot of this GDP report was residential fixed investment, which increased by 14.8%, well above our forecast for an 8.2% increase and the highest increase since Q4 2012. The acceleration was due to investment in other structures (including home improvements and brokers’ commissions from home sales), which surged by 17.2% after rising by 7.4% in Q4. Spending on permanent site structures (includes single-family and multifamily construction) slowed to a still-solid 12.2% increase after rising by 13.7% in Q4. Personal spending was slightly above our forecast of 1.8%, coming in at 1.9%, but still slower than the 2.4% increase in Q4.
Data have broadly shown a slower pace of consumer activity in Q1, which is somewhat surprising given that labor markets and incomes continue to improve and consumer sentiment remains high. That said, if personal spending turns out to have been stronger in the later months of Q1, it would create a favorable jumping off point for personal spending in Q2. (Monthly personal spending data will be released tomorrow.)
Elsewhere, government spending was also a bit above our expectations as federal government spending fell by less than we expected. Inventory investment subtracted 0.3pp from growth, slightly less than we had expected (-0.4pp).
Firms have slowed their pace of inventory investment for the past three quarters, adjusting to the failure of demand to meet expectations. This inventory correction is likely nearing completion, so we may see less of a drag from this component in the coming quarters."