This year’s first-quarter US GDP is expected to increase 1.9%, based on the The Capital Spectator’s average econometric nowcast. This is the initial estimate based on limited Q1 data and so the projection is a preliminary guesstimate that’s sure to be revised as new economic reports are published. The official Q1 GDP report is scheduled for release on April 26, when the Bureau of Economic Analysis will publish the first of three estimates. (All GDP percentage changes cited are quoted as real seasonally adjusted annual rates.)
Last year’s fourth-quarter GDP posted a small decline of 0.1%, BEA reported last week. The slight contraction came as a surprise to many analysts, including yours truly. The final Q4 nowcast on these pages, posted a few days before the government’s report was published, anticipated a 2.0% gain in 2012’s final quarter. What happened? Based on BEA numbers, an extraordinarily large decline in defense spending dragged down GDP in last year’s fourth quarter, as I discussed previously. Citing BEA numbers, national defense spending tumbled a hefty 22.2% in Q4 vs. a 12.9% rise in Q3. Quarterly declines of that magnitude are unusual by the standards of the past several decades. Unusual or not, the red ink caught most analysts by surprise. For some context, non-defense federal spending rose 1.4% in Q4, down from 3.0% in Q3.
Exect A Closer Match
The Capital Spectator’s nowcasting models focus on private-sector data. That focus isn’t usually a problem, unless there’s an unexpectedly steep drop in government spending, which was the case in Q4. Assuming that the fall in government spending was a one-time event, the GDP nowcasts going forward should offer a closer match with the final data. Regardless, the intention on these pages is one of evaluating the ebb and flow of the private sector, the dominant driver of the business cycle... usually.
Keep in mind that the relatively upbeat GDP nowcast for last year's Q4 is a sign that the private sector continues to grow, despite what the headline GDP number implies. Then again, factoring in changes in government spending can alter the big picture, as we learned the hard way last week. That said, it's an open debate if a similar glitch awaits in this year’s first quarter.
In any case, the current nowcast for this year’s Q1 continues to focus on private-sector data, and on that front the initial outlook is comfortably in the black. The usual caveats apply, of course, starting with the fact that several months of Q1 updates are yet to come and so today's nowcast will be revised as new numbers arrive. As usual, I’ll publish the updates and compare the revisions with the previous nowcasts.
For now, here’s how the current nowcast compares with several recent forecasts for Q1 from other sources:
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