US Q1 GDP Estimate Revised Up After Upbeat Economic Reports

The US economic outlook continues to improve for the upcoming first-quarter estimate of gross domestic product (GDP), based on a set of nowcasts. Compared with Q4’s solid increase, Q1 output is on track to show a substantially stronger gain in the scheduled Apr. 29 release from the Bureau of Economic Analysis.

Economic activity in the first three months of 2021 is on track to expand by 6.5% (real annual rate), based on the median nowcast for several estimates compiled by That’s up from the 6.0% estimate on Apr. 7. Note, too, that today’s revised Q1 estimate reflects a substantially faster pace vs. the 4.3% increase reported for last year’s Q4.

Supporting the upward nowcast revision: several upbeat releases of key economic indicators in recent days. Let’s start with retail sales, which surged 9.8% in March, driven by stimulus checks.

“Spending will almost certainly drop back in April as some of the stimulus boost wears off, but with the vaccination rollout proceeding at a rapid pace and households finances in strong shape, we expect overall consumption growth to continue rebounding rapidly in the second quarter too,” advises Michael Pearce, senior US economist at Capital Economics, in a research note.

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Another encouraging release: jobless claims fell to a new pandemic low last week, which suggests that the labor market’s recovery is on a sustainable path and possibly gaining speed.

“We’re gaining momentum here, which is just unquestionable,” says Diane Swonk, chief economist at the accounting firm Grant Thornton.

The 576,000 increase of new filings for unemployment benefits is still high relative to history, but the drop is an encouraging sign that the pandemic’s blowback is fading in terms of job loss.

“You’re still not popping champagne corks,” Swonk adds. “I will breathe again — and breathe easy again — once we get these [jobless claims] numbers back down in the 200,000 range.”

Note, too, that industrial production rebounded in March after a sharp decline in February, reportedly due to unusually cold weather. The manufacturing component led the recovery and more of the same is expected for the start to Q2, based on April survey data from two regional Fed banks (Philly Fed and New York Fed). In both cases, expectations for this month’s data point to ongoing strength.

Accelerating vaccinations and reopening businesses are adding to the optimism. But some economists worry that it’s all a macro sugar rush that will fade.

“I don’t see growth as being particularly durable,” warns Joseph LaVorgna, chief economist for the Americas at Natixis. “The economy is going to slow a lot more next year than people think and probably will be well under 3%.”

Perhaps, but expectations for a near-term acceleration are sucking up all the attention at the moment.

“We think the momentum continues into the second quarter,” predicts Brett Ryan, senior US economist at Deutsche Bank Securities. “It shows that the economy has significant momentum going into the summer.”

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