Strong Rebound Expected For US Q2 GDP Growth

The tepid rise in first-quarter GDP growth is on track for a sharp acceleration in Q2, according to estimates from several sources.

The latest nowcast from the Atlanta Fed’s GDPNow model is especially bullish. The bank’s May 16 update calls for a robust 4.1% increase in Q2 output. If accurate, the US economy will expand at the fastest pace in almost three years.

Several estimates from other sources anticipate Q2 growth in the low-2% range, although even these comparatively mild forecasts still represent an encouraging improvement over Q1’s weak 0.7% advance.

The upbeat GDP projections are supported by a run of bullish economic releases lately for key indicators. Industrial production increased more than expected in April, rising 1.0% — the highest monthly gain in three years. Retail sales were up a relatively modest 0.4% last month, but the gain marks a second month of higher spending, marking the fastest rate since January. Meanwhile, the growth rate in private payrolls in April picked up, rising a solid 194,000 vs. the previous month — news that boosts expectations that March’s weak gain of just 77,000 is only a temporary setback. Note, too, that new filings for unemployment benefits fell again in last week’s release, dipping close to a multi-decade low.

It’s still early in the current quarter and so bullish economic estimates should be viewed cautiously. April’s macro profile looks solid, but a lot can happen between now and July 28, when the Bureau of Economic Analysis is scheduled to publish the first official estimate for Q2 GDP. Nonetheless, with US recession risk virtually nil these days, there’s a compelling case at the moment for expecting that Q2 growth will rebound in some degree.

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