Tuesday, 29 March 2016 00:00

US GDP Growth Estimate Slumps To 0.6% For 1Q16

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In the recent past, I have discussed global slowdown and potential recession in several articles. I also discussed in one of my recent articles that the GDPNow indicator from the Federal Reserve Bank of Atlanta estimates GDP growth for 1Q16 at 1.4% (March 24, 2016 estimate).

The Federal Reserve Bank of Atlanta has released new estimates (March 28, 2016) and the latest forecast estimates GDP growth for 1Q16 at 0.6%. As the chart below shows, the GDP estimate for 1Q16 has slumped in March 2016 and this is largely in line with decline in global economic activity.

 

GDPNow Estimate For 1Q16 Growth

 

An important point to note here is that in the last four quarters, the deviation from GDPNow estimates and BEA advance estimates has not been very significant. In other words, the GDPNow model provides a good indication of likely GDP growth and the scenario is certainly not encouraging.

Clearly, corporate earnings will disappoint in 1Q16 and it would be best to avoid fresh exposure to the index at these levels.

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