In short: The significant gap between so-called “soft data” (such as surveys of business and consumer confidence) and “hard data” (the factors that directly support GDP growth) suggests yet another weak start to the year, but stronger growth is in the offing. Overall, expect another year of moderate growth.
Although the Bureau of Economic Analysis (BEA) won’t release its first estimate of Q1 2017 GDP until Friday, expectations have been falling for the past two months. As shown in the chart to the right, the consensus forecast for first quarter GDP has fallen to an annualized rate of less than 1.5%, after starting the year at about 2.2% (blue line). The GDPNow forecast model from the Federal Reserve Bank of Atlanta has sunk even more, from 2.5% in late February to just 0.5% currently (green line).
Editor’s note: First quarter GDP figures released today showed the economy growing at an annualized rate of 0.7%, below the consensus of economists, but more in line with the GDPNow model from the Atlanta Fed.
And yet the so-called “soft” economic indicators are almost uniformly strong. The consumer confidence level, which is highly correlated with consumer spending, has climbed to its highest level since December 2000 — two economic cycles ago! However, this soaring consumer confidence does not seem to be translating into spending. Retail sales fell in March for the second month in a row, the first consecutive monthly decline since early 2015.
Meanwhile, the business sector is also in a buoyant mood. Surveys from the Institute of Supply Management (ISM) show attitudes among purchasing managers in both manufacturing and services are above their post-recession averages and collectively are near their high point in this cycle. And yet, output remains weak. Though the surveys generally have been trending upward since August, especially for manufacturing, industrial output has dropped in four of the past eight months.
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Andrew J. Nelson is Chief Economist for Colliers International in the United States. Based in San Francisco, he covers a mix of general economic topics as well as related issues that bear on the performance of property markets.