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Decline In 1Q GDP Consensus, Despite Warm Weather

With S&P 500 making new bull market highs, it might seem a little surprising that consensus estimates for 1Q GDP growth came down this month, from 2.3% to 2.0%.

1Q forecasts from GS, JPM, MS, at 1.8%, 1.5, 1.3, respectively, are even lower; see my table below, showing the recent trend in forecasts from 9 large banks and other economists, from a monthly WSJ survey.

Consensus for 2Q GDP growth did rise this month, from 2.4% to 2.5%, with 2.6% and 2.7% expected in the last two quarters of 2012.

On Mar 12 I mentioned this 1Q forecast decline, but as of yet I haven't seen any mainstream articles commenting on it, including the WSJ article today on its survey of 50 economists (on Mar 12).

There has been debate over the impact of seasonal adjustment factors on overstating recent economic data, due to warmer weather and also the sharp decline in the last quarter of 2008.

Regardless, as I mentioned Feb 29 and Mar 15, the market's seemingly inexorable rise since the ECB's first 489 billion euro LTRO on Dec 21 lessened European tail risk (see my Dec 22 comment) has seemed to me like a reprise of the Sep 2010-Feb 2011 QE2 rally, both with very low volatility.

In both cases, it's been "heads central bankers win, tails bear lose." I.e., either the economy is strong enough to support higher earnings growth estimates, and thus higher p/e's, or the Fed and other central bankers will step in yet once again with their E-Z money policies.

As I've mentioned in my last few articles, SPX earnings growth, especially excluding AAPL, has flattened out, and margins may be peaking. Cuts on earnings estimates perhaps may have finally bottomed, but some leading i-banks are still expecting some form of QE3 no later than the end of 2Q.

Consensus seems to have started to move away from that opinion on QE3. But for now, the market still seems to be benefiting from the dynamic of good economic news is good news, and bad news is also good news, e.g. in China and other emerging markets, because it's perceived to increase the chance of more monetary easing.

Quarter Q1 Q1 Q1 Q1 Q1 Q2 Q2
Survey Date 11/11 12/11 1/12 2/12 3/12 2/12 3/12
               
wsj consensus 2.0 2.1 2.2 2.3 2.0 2.4 2.5
               
bar, maki 2.5 2.5 2.5 2.5 2.5 2.5 2.5
boa-ml, e. harris 2.0 1.8 2.2 2.2 1.8 2.0 2.0
cs, soss 2.2 2.2 2.2 2.2 2.2 2.2 2.2
db, lavorgna 2.2 2.0 2.0 2.8 2.8 2.9 2.9
gs, hatzius 0.5 0.5 2.0 2.3 1.8 1.5 2.0
jpm, kassman 0.5 0.5 2.0 2.0 1.5 2.5 2.5
ms, greenlaw 0.8 2.2 2.3 2.0 1.3   2.4
ubs, m. harris 2.0 1.5 1.5 2.3 2.3 2.0 2.0
wf, silvia 1.8 1.5 1.4 1.5 1.5 1.6 1.3
average 1.6 1.6 2.0 2.2 2.0   2.2
               
bernstein, carson 2.9 2.9 3.4 3.1 3.2 3.2 3.5
cap econ, ashworth 1.0 1.5 1.5 1.5 1.2 1.5 2.8
dec econ, sinai 3.1 3.0 2.7 2.4 1.8 2.6 2.7
encima, malpass 1.5 2.0 2.0 2.0 1.2 3.3 3.6
first trust, wesbury 3.0 3.0 3.0 3.0 2.0 2.5 2.5
high freq, shphrdsn 3.0 3.0 3.0 3.0 2.5 3.0 3.0
ihs, behravesh 1.4 1.7 2.0 2.2 1.9 2.3 2.1
macro advis, prakkn 1.3 2.0 2.0 2.0 1.8 2.3 2.6
macro global, nielsn 3.0 2.9 3.1 2.9 3.1 3.1 3.1
mesirow, swonk 2.1 2.0 1.9 1.9 2.0 2.2 2.4
mfr, ramirez 2.9 3.1 2.6 1.8 1.6 1.6 1.6
moody's, lonski 1.6 1.7 1.8 1.6 1.4 1.6 1.8
nomura, ressler 1.5 1.5 1.5 1.8 1.7 2.3 2.4
nt, kasriel 1.5 2.1 2.1 2.4 2.3 2.4  
pier, stanley 3.1 3.2 3.0 1.8 1.3 2.7 2.5
rdq, ryding 2.8 2.8 3.0 2.8 2.8 2.9 2.9
ucla, leamer 1.2 1.5 2.0 2.5 2.0 2.0 1.7
average 2.2 2.3 2.4 2.3 2.0 2.4