1Q14 US GDP Will Probably Disappoint

We had two major economic releases today that suggest that the first quarter GDP in the US may be lower than previously expected. First, the trade deficit unexpectedly widened to $42.3 billion in February from $39.3 billion in January. The consensus was for a slightly narrowing of the deficit. Exports fell by a little over 1% month-over-month and are only about 2% higher year-over-year. This widening of the deficit will add a drag to the first quarter growth rate.





The second major release this morning was the ISM Non-Manufacturing Index. While the headline series did bounce back from 51.6 in February to 53.1 in March, our approximate GDP-weighted ISM Manufacturing and Non-Manufacturing combined series suggests that US GDP growth could fall back below 2% in the first quarter. One encouraging component, however, was the employment index which snapped back from 47.5 in February (indicating employment was contracting) to 53.60 in March. This is the largest one month gain for the employment series since this series started in 1997.