The release of Q1 GDP data has caused significant market volatility, with the US dollar strengthening and equities weakening due to higher-than-expected inflation numbers. Goldman Sachs has emphasized that the composition of growth was not as weak as initially estimated (+1.6% vs +2.4% exp). However, government spending decelerated more than anticipated, with federal spending contributing negatively to GDP.
The pricing data in the PCE report particularly surprised the market. Nick Timiraos of the WSJ calculates that it implies a core PCE increase of +0.48% in tomorrow’s report, compared to the consensus of +0.3%. Goldman Sachs is more cautious, projecting a more modest core estimate of +0.33% (from 0.30%). This would result in a core inflation rate of 2.84% y/y, higher than the consensus of 2.7%. The PCE data is scheduled to be released on Friday at 8:30 am ET.
