REUTERS/Yuya Shino
The national flags of Japan and the U.S. are seen in front of a monitor displaying a graph of recent fluctuations of the Japanese yen's exchange rate against the U.S. dollar at a foreign exchange trading company in Tokyo December 19, 2013.
Economists expect GDP growth will be revised down to -0.5% from an earlier estimated of +0.1%.
"A Q1 decline in real GDP does not jibe with some key metrics of the economy," said Deutsche Bank's Joe LaVorgna. "Case in point, nonfarm payrolls expanded by +190k per month in Q1. At the same time, the ISM manufacturing survey averaged just under 53, and both retail sales (+1.0%) and manufacturing industrial production (+2.1%) eked out annualized gains in the quarter. In other words, there appears to have been a Q1 disconnect between some key measures of output and real GDP growth."
The personal consumption component of the report is expected to be revised up to 3.1% from an earlier estimate of 3.0%.
"Most of the adjustment down is expected to be in inventories, because the Commerce Department assumed way too much inventory accumulation in March," explained Citi's Peter D'Antonio. "Although this was only the second negative print of the expansion, we do not believe it was a harbinger of a slowdown or problems in the economy. Instead, we think the weakness reflected weather distortions that hampered activity."
Most economists are communicating D'Antonio's sentiment. After all, Q1 ended in March and we have two months of encouraging Q2 data.
"The economy likely will rebound sharply in the second quarter, and the data show that this in fact is already happening," said D'Antonio. "So we are viewing the second pass at GDP as old news, even if the economy shrank in the quarter."
"The broader rationale for stronger growth in 2014-2015 also remains intact," said Goldman Sachs' Jan Hatzius. "The fiscal policy drag of 2013 has ended. The household sector debt/income ratio seems to have bottomed. And while we recently shaved our homebuilding numbers a bit, our forecast remains one of recovery."