What to Watch For in Friday’s G.D.P. Report
The economy has slowed since last year. But rumors of the expansion’s death look greatly exaggerated.
The Commerce Department will release its preliminary estimate of first-quarter economic growth at 8:30 a.m. Friday. Forecasters surveyed by MarketWatch expect the report to show that gross domestic product, the broadest measure of goods and services produced in the economy, rose at a 2.3 percent annual rate in the first three months of the year, little changed from 2.2 percent in the final three months of 2018.
If the forecasts are right, the rate will continue a slowdown from the middle of last year, when tax cuts and government spending briefly pushed growth above 4 percent. And even that slower pace probably overstates the underlying strength of the economy, because Friday’s G.D.P. figure will be inflated by temporary factors that will fade as the year goes on. Hardly any independent economists expect that President Trump will be able to deliver the 3 percent growth he has promised this year.
Still, after a rough winter, the economy appears to have entered the spring fundamentally intact. Stock-market turmoil, a partial government shutdown and a crippling “polar vortex” failed to bring the decade-long recovery to an end. And with the job market still strong and consumers confident, fears of a recession appear to have been set aside.
“The angst has settled, and the economy has come back,” said Ben Herzon, an economist with Macroeconomic Advisers, a forecasting firm. “I just can’t point to anything now that’s going to push us into recession.”
Here’s what to watch for in Friday’s report.
Ignore the headline number
G.D.P. growth of 2 percent or 2.5 percent isn’t great, but it’s a lot better than many economists expected a few weeks ago.
On March 1, Macroeconomic Advisers expected first-quarter growth to come in at just 1 percent. Some forecasts were even worse. Since then, however, estimates have crept gradually up. Macroeconomic Advisers now expects Friday’s report to show growth of 2.9 percent, and most economists expect a rate comfortably over 2 percent.
Don’t get too excited by that number, though. First-quarter G.D.P. was probably inflated by a buildup of inventories and by a steep decline in imports. Both trends are likely to reverse in the second quarter. (Imports count as a negative in G.D.P. accounting, so a decline in imports makes growth look stronger.)
For a better gauge of the economy’s strength, analysts recommend focusing on a different number, which strips out trade and inventory effects as well as the impact of government spending. That measure, known as final private sales, probably came in well below 2 percent.
“That’s what the economy felt like in the first quarter, with the government shut down, with the extreme market volatility over the turn of the year, with the polar vortex,” said Ellen Zentner, chief United States economist for Morgan Stanley. “It just doesn’t feel like a good quarter.”
Consumers have bounced back
Consumer spending has been the bedrock of the recovery, staying strong even as other sectors have ebbed and flowed. So economists were nervous when spending tumbled unexpectedly in December and failed to rebound in January.
Since then, things have looked better. Consumer confidence, which fell sharply in December and January, quickly recovered once the shutdown ended and financial markets stabilized. Retail sales bounced back strongly in March.
The net result: Consumer spending was probably weak in the first quarter, perhaps the slowest in a year. But the quarter ended on a strong note, and most economists see little reason to worry looking ahead.
“We did see strengthening throughout the quarter with momentum building,” Ms. Zentner said. “We’ve got nice consumer spending momentum going into the second quarter.”
Businesses are still uncertain
But if consumers were quick to put the winter winds behind them, businesses still seem wary. The miniboom in manufacturing that greeted Mr. Trump’s first two years in office appears to be fading, and economists expect that overall business investment was anemic in the first quarter.
“If there’s weakness, it’s in the business-spending data,” said Michael Gapen, chief United States economist for Barclays. “It has yet to rebound in a meaningful way following the end of the government shutdown.”
That caution may reflect nervousness about how long the economic expansion, already among the longest on record, can last. But while economists say another recession is inevitable eventually, they see little evidence that one is on the horizon.
Economists do expect growth to slow this year, as the effects of tax cuts and government spending increases fade. But they are less nervous than a few months ago, when markets were in turmoil, trade tensions were flaring up and the Federal Reserve seemed uncertain about which way to turn.
“We had a near miss on a recession, but we didn’t have one last year. We won’t have one this year,” said Joe Brusuelas, chief economist for RSM, a financial consulting firm. “I think this is a good place for the economy to be.”