Awaiting Q1 GDP Results: Can US Economy Fend Off Recession Fears?

On Thursday, the U.S. Bureau of Economic Analysis will announce its preliminary estimates of the first-quarter gross domestic product. 

The consensus among economists forecasts an annualized quarterly growth rate of 2% for the first three months of 2023.

In the last quarter of 2022, the U.S. economy grew at an annualized rate of 2.6%, down from the initial predictions of 2.7% growth and from the 3.2% rate in Q3 2022. Inventory investment and consumer spending were the main contributors to the Q4 GDP increase, while housing investment represented a drag.

Jennifer Lee, senior Economist and Managing Director at BMO Economics, stated that "whatever the reason, Americans continued to feel a little uneasy" as rates have been on the rise for over a year, and the economic impacts are now being seen.

How Markets Performed In Q1

The first quarter of 2023 in markets was highlighted by stresses on regional banks, which resulted in the collapse of Silicon Valley Bank and Silvergate Capital, although stocks performed well due to the increased liquidity provided by central banks. 

The S&P 500 index, as tracked by the SPDR S&P 500 Trust ETF SPY, finished the quarter up 6.5%. 

The bond market, however, continued to discount an impending recession, as seen by the extremely wide yield differential between 3-month and 10-year Treasuries. 

Latest Econ Stats Were Mixed But Shouldn't Point To A Negative GDP Print
Recent U.S. economic statistics have been rather mixed, but the level of business activity has shown some resilience lately, which may put bleak GDP prints at bay for now.

• New orders for U.S. manufactured durable goods increased by 3.2% month-on-month (mom) in March, substantially above a 0.7% rise expected.  

• The most recent flash S&P Global PMIs for the United States revealed a surprising increase in both manufacturing and service activity in April.

• The housing market showed signs of bottoming out during the quarter. New house sales soared 9.6% mom in March, the highest rate since August 2022, reversing a revised 3.9% drop in February and far exceeding projections of a 1.1% rise.

• Industrial production grew 0.4% mom in March 2023, exceeding expectations of a 0.2% increase and rising from an upwardly revised 0.2% surge in February. 

• On the consumer front, some signs of weakening are emerging. Retail sales were down 1% in March, worse than the 0.4% decline expected, while the Conference Board's Consumer Confidence Index recently declined more than predicted to 101.3. 

• Finally, the labor market remains extraordinarily tight, but there are some early signs of softening. Nonfarm payrolls were 236,000 in March, the lowest since December 2020, and fell short of predictions of 239,000. However, both January and February's prints in NFPs were rather strong. Initial unemployment claims have started to tick up recently.

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