Q1 GDP Finishes Revision Cycle At +1.1% QoQ SAAR

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On Tuesday, the BEA released its third and final estimate of Q1 2016 GDP growth. After an initial release of 0.53% QoQ SAAR, growth was ultimately revised up to +1.08% QoQ SAAR. Tuesday's release showed upward revisions to health care services consumption, intellectual property investment, and goods exports, with downward revisions to other services spending (driving down total consumption growth), inventories, and imports. The net results were positive, but despite a positive revision cycle, Q1 US GDP growth wasn't very impressive. It's important to remember that declines in oil patch investment still had a massive impact. Reduced oil field investment shaved 55 bps off Q1 GDP alone (after -45 bps, -68 bps, -29 bps, and -20 bps in each quarter of 2015, respectively). And that's only accounting for wells specifically; the pass-through of lower investment in machinery, extraction equipment, and similar spending isn't included in that figure.

The good news is that the slowdown in growth in Q1 looks unlikely to continue. While Q2 isn't setting up for massive jumps in output, both the Atlanta Fed's GDPNow tracker and the New York Fed's Nowcast model suggest a rebound. As shown below, the widely cited Atlanta Fed model for GDP forecasting is quite accurate at predicting the initial GDP print, but it's not able to take into account new information over time that leads to upward revisions of Final GDP like those we saw this quarter. The same would be true for downward revisions. So, while growth should have a decent 2-handle in Q2, the cows are certainly not in the barn yet!