Brace yourselves, dollar traders! The first big glimpse of how the U.S. economy fared in Q1 is coming. Here’s what to expect for the advance GDP release.
Better keep tabs on this report due on Friday (April 26) 12:30 pm GMT since it is the earliest estimate for the most comprehensive gauge of U.S. economic growth for the period. Of course this GDP figure is likely to see revisions as new data comes to light, but the scrilla tends to have the biggest reaction to the upcoming release.
What happened previously?
- Advance Q4 2018 U.S. GDP at 2.6% vs. 2.2% forecast, 3.4% previous
- Advance Q4 2018 U.S. price index steady at 1.8% vs. projected dip to 1.7%
The advance GDP report for the last quarter of the previous year was just released in February, delayed by almost a month because of the U.S. government shutdown.
The Bureau of Economic Analysis revealed that the economy expanded by 2.6% versus the projected 2.2% growth figure, but this was still slower compared to the earlier 3.4% reading.
Components of this initial report, which also took the place of the second estimate due to the delay, reflected positive contributions from personal consumption, nonresidential fixed investment, exports, private inventory investment, and federal government spending.
Still, an increase in imports and a downturn in state and local government spending weighed on the overall figures.
The updated final Q4 2018 GDP reading released a month later featured a downward revision to 2.2% while the price index was also downgraded to 1.7%.
What’s expected for the Q1 2019 advance GDP?
- Advance Q1 2019 U.S. GDP to show another 2.2% growth figure
- Q1 2019 GDP Price Index to slide from 1.8% to 1.3%
Number crunchers aren’t setting the bar too high for the first quarter’s growth figures, looking ahead to just another 2.2% expansion for the period. A lower read could mark the slowest pace of growth since Q2 2017.
Keep in mind that the first few weeks of the year were still clouded by the U.S. government shutdown as funding for the border wall was a big issue for the most part of January.
Apart from that, trade tensions with China were also strongly in play, likely keeping a lid on business activity. To top it all off, the impact of the Trump tax cuts and fiscal support may have started to wane then.
Of particular interest is the GDP price index, which is slated to post a notable drop from 1.8% to 1.3%, underscoring the Fed’s outlook for weaker inflation. This would likely put the central bank’s preferred inflation gauge far below their 2% target.
On a more cheery note, there were some green shoots towards the latter part of the quarter as the trade deficit narrowed while China followed through on its promises to increase purchases of some U.S. products. In addition, consumer spending showed quite the rebound in March after a rough start in Q1.
How are the main GDP components looking?
- Headline retail sales up 1.6% in March, down 0.2% in February, and up 0.2% in January
- Core retail sales up 1.2% in March, down 0.2% in February, and up 0.9% in January
- Trade deficit narrowed from $51.5 billion in January to $49.4 billion in February
- Exports rose 0.9% in January and 1.1% in February. Imports fell 2.6% in January and rose 0.2% in February.
- Durable goods orders gained 0.3% in January then fell 1.1% in February
- Core durable goods orders dipped 0.2% in January then ticked 0.1% higher in February
- Factory orders fell for the fourth time in five months for February while inventories piled up
- Building permits have been on the decline from 1.33M in January to 1.32M the following month and 1.27M in March
- Housing starts fell to 1.04M in January, recovered to 1.27M in February, then slipped to 1.14M in March
- Manufacturing indices were generally off to a good start for the year then took hits in February before rebounding slightly in March
How might the dollar react?
The initial reaction to the U.S. Q4 2018 advance GDP release was bullish overall and there was enough follow-through for almost the entire session. After all, the headline reading and price component both beat expectations.
Note, however, that the positive reaction was extended mostly against the yen, Aussie, and pound while the rest of its rivals held on to the gains then cruised sideways later on.
Stronger than expected results for Q1 2019 could keep traders hopeful that the Fed could resume its tightening moves sooner rather than later, but disappointing figures could spur dovish bets and hurt the Greenback.
Just keep in mind that traders usually have a knee-jerk reaction to the release itself before petering off to a particular direction as traders digest the report’s components.
Also, the GDP price index is also worth watching to gauge if there may be follow-through buying or selling. After all the GDP price index is more directly linked to inflation and rate hike expectations.
Lastly, if news trading ain’t your thing or if high volatility makes you uncomfortable, then just remember that you always have the option to sit on the sidelines and wait for things to settle down.