Today's release of an upwardly revised Q415 Real GDP Growth to 1.4% (q/q, saar) from 1.0% does not change the US economic outlook. And, it should not impact Fed monetary policy.
1. The 1.4% pace is still below the 1.7% trend estimated by Fed staff.
2. The weakness in GDP is particularly apparent in the large drop in Corporate Profits that put them 11.5% below the level in Q414. The drop helps to explain the stock market weakness in late 2015 and early 2016.
3. Most of the upward revision resulted from replacing Commerce Department staff's estimates of some consumer service spending -- particularly spending on health care -- with recently released survey findings. Other parts of the economy remained mostly sluggish.
More important is the downward revision in the Atlanta Fed's GDP NOW Estimate of Q116 Real GDP Growth. It argues against a Fed tightening in April.
1. The Estimate was revised down to 1.4% from 1.9%, taking account of this week's releases of US economic data.
2. The Q116 GDP pace is now projected to be the same in Q116 as in Q415 -- in line with what I had shown yesterday with regard to January-February Home Sales and underlying Durable Goods Orders.
3. The absence of a boost to Q116 Real GDP from the warm winter is consistent with the history of Q1 GDP when temperatures are warm.
Early evidence suggests some speedup in Q216 Real GDP Growth -- which should not be surprising since the Fed eased in March (relative to its earlier forward guidance, which I have argued is the best way to evaluate policy). But, it is too soon to say how much of a speedup will be seen. This speedup could be important with regard to a June Fed rate hike.
1. The Claims data improved in so far in March, although the uptick in last week's Initial Claims raises some questions about the sustainability of the improvement.
2. The ECRI Leading Index has risen sharply in the past 5 weeks, spurred in part by the stock market rally. It is back to levels seen in July 2015.
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