This week's release of Q119 Real GDP could undermine the market narrative of a US economic slowdown. A print close to the Atlanta Fed model's 2.8% projection would be well above the 1.8% consensus. It could precipitate another ratcheting up of longer-term Treasury yields -- although they seem to be more related to German yields than US economic data at the moment. To be sure, there are a few more data points ahead of the release that could impact the GDP estimates -- Existing and New Home Sales and Durable Goods Shipments.
One of the factors presumably behind the market narrative is the bad winter weather. But, historically, there is no consistent relationship between bad winter weather and weak Q1 GDP Growth. While January and February activity tends to be impacted by the weather, a recovery often begins in March, thus salvaging the quarterly average.
A March recovery this year so far has been evident in Retail Sales and Payrolls. But, manufacturing output and residential construction are still lagging. Some of the manufacturing weakness is in the motor vehicle sector, which appears to be going through an inventory correction. Bad weather could have weighed on Housing Starts in March. With mortgage rates down and Purchase Component of Mortgage Applications up, the housing sector may be poised to snap back this Spring.
Perhaps the most important near-term evidence regarding manufacturing and housing will be whether job growth in these sectors bounces in the April Employment Report, due May 3. So far, the Claims data suggest a strong overall jobs gain, although the relationship between Claims and Payrolls as well as between Claims and the Unemployment Rate are not exact.
Change Between Payroll Survey Weeks m/m change
4-Week Avg Continuing Claims Payrolls Unemployment
of Initial Claims Rate
Jan 19 -2k +5k 312k +0.1% pt
Feb +15 +93 33 -0.2
Mar -12 -50 196 0.0
Apr -24 -103 *
* Change from March Survey Week to Week Before April Survey Week.
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