With all eyes firmly focused on the dismal Q1 GDP print and summarily dismissing it as ‘noise’, backward-looking, ‘weather’, and ‘exogenous’; today’s worrying spending data has sent the serial extrapolators among the sell-side economist herd scrambling to downgrade over-exuberant Q2 GDP expectations (five so far).One glance at this chart is all one needs to know about the “bounce back” in pent-up demand spending (that is not there). As Bank of Tokyo-Mitsubishi’s Chris Rupkey told Bloomberg, “Don’t start betting on those 3% GDP numbers yet.” This only trumped Goldman Sachs ‘oh-so-embarrassed-again’ Jan Hatzius who slashed his exuberant 4% Q2 GDP growth estimate to 3.5% (for now).
Five so far…
Goldman Sachs: We reduced our Q2 GDP tracking estimate by five-tenths to 3.5%.
1. The May personal spending report was weaker than expected. Personal income grew +0.4% (vs. consensus +0.4%) in May. The core wages and salaries component grew 0.4%. Other personal current transfer receipts grew a strong +1.9%, related to the Affordable Care Act. Personal spending rose a smaller-than-expected +0.2% (vs. consensus +0.4%). Back-revisions to previous months reflected the large downgrade to Q1 healthcare spending found in yesterday’s GDP revision. As a result of spending growing less quickly than income, the personal saving rate increased three-tenths to 4.8%.
2. The available data on healthcare spending in Q2 has not been consistent with the way we assumed the Commerce Department would continue to account for the Affordable Care Act, which would have resulted in a boost to growth.
Action Economics: Q2 GDP 2.5% from previous 3% expectation
Today’s U.S. reports included an expected 0.4% personal income rise in May, but with asurprisingly weak spending trajectory through April and May that followed huge downward Q1 revisions revealed in yesterday’s GDP report to leave a substantial downgrade in our growth estimates for Q2. We now expect a 2.5% (was 3.0%) real GDP growth rate in Q2 with an anemic 1.5% (was 2.7%) clip for real consumption as consumer caution has apparently increased.
