U.S. GDP Growth Estimate Slumps To 0.1% For 1Q16

by: Disruptive Investor

According to the GDPNow indicator from the Federal Reserve Bank of Atlanta, US GDP growth for 1Q16 is estimated at 0.1%. If this holds true, the economy has witnessed a sharp slowdown in March 2016 as is evident from the GDPNow estimate chart below.

It is important to mention here that in the last four quarters, the average percentage error between the forecast model and advanced BEA estimates has been 0.3%. While there have been instances where the error has been even close to 1.0%, the data still suggests that US economic activity has declined meaningfully as compared to 4Q15.

With these estimates, I can say with some conviction that rate hike is unlikely not only in 1H16, but potentially in 2H16. If economic growth has declined considerably in 1Q16, policymakers would ideally want to wait before there are some indications of uptick in growth and growth sustains at higher levels. While artificially low interest rates do little to trigger real GDP growth, I am just thinking from the mindset of a policymaker.

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