The fallout from today’s first look at first quarter GDP continues to reverberate with a stronger US dollar and weaker stocks due to high inflation numbers.
Goldman Sachs points out that the composition of growth was not as soft as the headlines (+1.6% versus +2.4% expected).
“The contribution of stocks (-0.4 pp against GS +0.2 pp) and foreign trade (-0.9 pp against -0.4 pp) represented most of the shortfall,” write the economists from Goldman. “Indeed, the growth in domestic demand took place at a sustained pace of +2.8% annualized. This reflects a double-digit pace of growth in residential investments (+13.9%) and a solid growth in consumption (+2.5%) and fixed business investment (+2.9%), the latter reflecting gains in two of the three investment subcategories (equipment +2.1%). , intellectual property +5.4%, structures -0.1%).”
Goldman also points out that government spending has slowed more than expected, with federal spending contributing negatively to GDP.
However, it was the PCE report’s pricing figures that caught the market off guard the most. WSJ’s Nick Timiraos calculates that this implies +0.48% core PCE in tomorrow’s report versus the consensus of +0.3%. Goldman Sachs does not seem convinced since it only increased its base estimate from 0.30% to +0.33%. This would put the core at 2.84% over one year, compared to the consensus of 2.7%.
The numbers are expected to be released Friday at 8:30 a.m. ET.
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