After today's stagflationary GDP print, which came below the lowest Wall Street estimate even as core PCE came in above the highest estimate...
... there has been an outcry of horror from Wall Street's traders, analysts and strategists as the BEA once again steamrolled all over Wall Street's benevolent forecasts for a soft, or no, landing and crash-landed right into stagflation nation.
Below we excerpt from some of the most notable kneejerk responses and comments:
Ian Lyngen at BMO Capital Markets, on the potential implication of the core PCE inflation gauge this morning on tomorrow’s monthly release:
“The question has quickly become whether this is due to revisions from Jan/Feb or if tomorrow’s monthly core-PCE report will reveal a stronger-than-consensus (+0.3%) print.”
Ira Jersey, Bloomberg Intel chief Rates strategist
“The rate market is keenly focused on the PCE deflator beating expectations in 1Q. We still target 4.70% as a key technical level for 10-year Treasury yield. A break of that targets the cycle highs around 5%.”
“It looks like the fiscal drag on the economy may have begun with federal government consumption actually a drag on GDP this quarter. Not huge, but any negative print is still a shift from the past few years. But 2.5% consumption growth still isn’t anywhere near recession, and services consumption growing at 4% suggests a more pronounced slowdown could be a long way off.”
Sebastian Boyd, Bloomberg analyst
Bond traders can read the GDP data in two ways. The growth number was a big miss, but prices rose faster than expected. Of course this is the first pass at the data, but if it holds up then it shows the US economy is considerably weaker than thought, which would open the way to earlier interest rate cuts. On the other hand, the Fed is more likely to focus on inflation than growth, and the price index, especially the core price index, doesn’t offer any comfort on that front. Two-year yields initially fell, but are now much higher on the day. Stock futures are down; the dollar is spiking. Keep an eye on the yen.
Lindsay Rosner, head of multisector fixed income investing at GSAM
"The report has a disappointing headline and consumption line item, but at this point, inflation concerns weigh more than GDP softness for the Fed.”
Quincy Krosby, Chief Global Strategist at LPL Financial:
“The softer first read of Q1 GDP could shift -- again- the Fed’s timetable for initiating the rate easing cycle, with July coming back into play. If the PCE report due tomorrow similarly suggests the downward path of inflation has begun to once again momentum, it could serve as a catalyst for the market.”
Dan Suzuki, deputy CIO at Richard Bernstein Advisors,
"The GDP print is not as bad a print as it appears on the surface. The main drags were in goods demand (which we already knew based on the manufacturing PMIs), government spending and exports. I think it was actually pretty encouraging to see solid investment spending in both capex and housing, while weaker net exports reflect the robust domestic demand for imports, even as economic growth outside the US has been a bit more tepid.”
Enda Curran, Bloomberg Fed watcher and commentator
"The other political takeaway from today’s data is that just six months out from the presidential election, it looks like the economy is finally slowing down. The details of the data are overall robust -- but it’s the headline that counts for politicos."
Rubeela Farooqi, chief US economist at High Frequency Economics:
“The outlook going forward is uncertain. Strength in the labor market is likely to keep household spending and growth positive for now. However, a delay in Fed rate cuts to counter sticky inflation could be headwinds for consumption and the growth trajectory over coming quarters.”
Olu Sonola, head of US economic research for Fitch Ratings:
“The hot inflation print is the real story in this report. If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.”
Jan Hatzius, Goldman economist
Real GDP rose 1.6% annualized in the advance reading for Q1 (qoq ar)—0.9pp below consensus and the first quarter below 2% since the second quarter of 2022. The composition was not as soft, as the contribution from inventories (-0.4pp vs. GS +0.2pp) and foreign trade (-0.9pp vs. -0.4pp) accounted for the bulk of the miss. Indeed, domestic demand growth proceeded at a strong pace of +2.8% annualized. This reflected a double-digit pace of residential investment growth (+13.9%) and solid growth in consumption (+2.5%) and business fixed investment (+2.9%), the latter reflecting gains in two of the three capex subcategories (equipment +2.1%, intellectual property +5.4%, structures -0.1%). Government spending growth slowed more than we expected to +1.2% (vs. GS +1.9% and Q4 +4.6%), reflecting a surprising decline in federal (-0.2%) and a smaller-than-forecast rise in state and local (+2.0%) spending.
Alan Detmeister, UBS economist
We had 3.5% so were slightly less surprised than the consensus. The months that go into the Q1 number released today will be used in the 12-month change on Thursday, however the weighting across those months is quite different with the January monthly change getting much more weight in today’s quarterly number than it does in the 12-month change released tomorrow (and the opposite for the March monthly change). Nonetheless the 0.2pp upward surprised on the annualized Q1 core PCE price change definitely increases the risk of an upward surprise to the 12-month change tomorrow. (Treating months equally it would suggest tomorrow’s estimate of the 12-month change around 5bp higher than what we have.) It is more difficult to say anything on the March monthly because it is quite possible that today’s surprise was upward revisions to January or February, so again today’s data raises the upside risk on March, but hard to say how much.
Source: Bloomberg
