As anticipated, the estimate of fourth quarter GDP growth was revised lower (to 2.2%, vs. +2.6% in the “initial” estimate). All major components grew a bit less than in the previous estimate. Recent figures have generally been consistent with a lackluster pace of growth in 1Q19. However, while we are poised to see a pickup in general economic activity in the second quarter, the pace for the year as a whole is likely to be slower than was expected a few months ago – and the risks to the growth outlook are tilted to the downside. Is that enough for the Fed to lower short-term interest rates? Not yet, but it will depend on the incoming data.
GDP growth naturally varies from quarter to quarter. So one or two soft quarters is nothing to worry about. Similarly, one or two strong quarters is nothing to crow about. However, in hindsight, last year’s fiscal stimulus (tax cuts and increased government spending) appears to have been more front-loaded than expected. We only have consumer spending numbers for January, which are subject to revision, but the improvement following an unusually weak December was disappointing. That may reflect an impact from the partial government shutdown, which would be consistent with a rebound in growth in the second quarter. Despite the BEA’s efforts to eliminate residual seasonality, the first quarter GDP figures in recent years have tended to be below average, while the second quarter figures have tended to be above average. This pattern may be repeating in 2019.