The US economy likely grew at a slower pace in Q1 2023, according to economists’ expectations. The Bureau of Economic Analysis will release its first estimate of Q1 GDP on Thursday before the market opens. Economists generally anticipate a 2.5% annualized growth rate, compared to 3.4% in Q4 2022. This projection is largely attributed to the continued strength of consumer spending, underpinned by a resilient labor market. Additionally, businesses’ investments in nonresidential fixed investment and inventories have also contributed to growth. However, residential investment is likely to have declined, primarily due to a slowdown in multifamily homebuilding.
Despite the expected slowdown, several factors suggest the potential for an upside surprise in GDP growth. The labor market remains strong, with payrolls reaching 303K in March. Moreover, a pickup in the manufacturing cycle and continued strong consumer demand could lead to a stronger-than-anticipated GDP reading.
On the other hand, Wells Fargo warns that despite an increase in headline durable goods orders in March, weakness in shipments may result in a softer-than-expected GDP growth reading. Market participants are hoping for a lower GDP number to pave the way for earlier interest rate cuts. However, strong GDP data could have positive implications for revenue growth but may also delay rate cuts.
While some market participants expect the Federal Reserve to start cutting rates in July, a more common view is that cuts will begin in September due to persistent inflation.
