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What To Expect From Q1 GDP?

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Today saw the second revision (third take) on Q4 Gross Domestic Product (GDP), among the most important metrics to follow regarding economic growth. Expectations for Q4 were to have seen a 20 basis-point rise from the previous read’s 2.5%, but the results were even stronger: 2.9% for Q4 GDP, very nearly marking the third straight quarter of 3% growth.

Overall, Q4 slowed down a bit from Q3: in terms of real Gross Domestic Income (GDI), a gauge of wage growth in relation to overall economic growth, we saw a Q4 rise of 0.9% as compared to the previous quarter’s +2.4%. Averaged out between both GDP and GDI reads, Q4 reached 1.9% and Q3 was 2.8%. Real GDP for full-year 2017 arrived at 2.3%, with no further coming revisions to last year’s numbers.

Recall Q1 2017 started off slowly — its initial GDP read was sub-1%, though revisions moved this higher over time — but picked up steam in a big way in Q2 and Q3. Even with a slight pullback to 2.9% in Q4 (Q3’s final read was 3.2%), economic growth is on a good trajectory. Combine this chain of three strong quarters in a row with new corporate taxes having been slashed, and Q1 prospects look pretty solid. The first report on Q1 GDP is expected April 27, 2018.

That said, there is always a matter of seasonal slow-down associated with the first quarter of a new year. Most notably among estimates from various Federal Reserve entities around the country was in the Atlanta Fed reads, which had recently been ratcheted down to 1.9%. What’s notable about this is that Atlanta’s previous forecast was for an eye-popping 5.4% growth in Q1. This was an outlier at the time, and has now become one of the more conservative outlooks a month from the initial look.

Elsewhere in GDP data, Consumption rose to 4.0% from 3.8% in the last previous read, the Price Index reached 2.3% and Personal Consumption Expenditures were  exactly in-line with the prior look of 1.9%. Wholesale Inventories were up a bit to 1.1%, indicating incremental increases in production.

Q1 earnings season will be here before the first read on Q1 GDP, so the robust expectations for publicly traded companies will have manifested before the next GDP results are released. Expectations for Q1 are very good, although with a higher bar set, it remains to be seen whether a majority of the S&P 500 will be able to outperform. Tax cuts are currently being baked into estimates, but this is new territory.

The calendar end to Q1 is tomorrow, which is shortened by a day for the Good Friday holiday. We expect earnings results from the bank majors like J.P. Morgan (JPM - Free Report) , Citigroup (C - Free Report)  and Wells Fargo (WFC - Free Report) . If you’re looking to get ahead of the curve, read Zacks Director of Research Sheraz Mian’s latest Earnings Trends report: Handicapping Q1 Earnings Season


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