Event:
The initial annualized rate of real GDP growth in the first quarter of the US economy unexpectedly recorded – 1.4%, and the market is expected to be 1.1%. We believe that the most important reason for the unexpected negative growth in the first quarter is that the epidemic disturbance has introduced extreme values into the seasonal adjustment process. Non quarterly data show that US economic growth is still higher than potential growth. If extreme values are excluded, the US economy is likely to maintain growth – although the growth momentum has weakened due to high inventories and declining government spending.
Key points of comments:
The negative growth of the United States in the first quarter was mainly dragged down by seasonal adjustment factors
The US economy experienced unexpected negative growth in the first quarter. The initial annualized rate of real GDP growth in the first quarter of the US economy unexpectedly recorded – 1.4%, and the market is expected to be 1.1%. However, non quarterly data show that US economic growth remains strong. The non seasonally adjusted real GDP data achieved a total GDP of US $4.83 trillion in the first quarter, a year-on-year increase of 4.29%. If we remove the distortion of the epidemic situation and then conduct quarterly adjustment, the annualized rate of month on month growth in the first quarter can become positive.
The momentum of the US economy weakened month on month
The decline in GDP in the first quarter reflected a decrease in inventory investment, exports, federal and state and local government spending, as well as an increase in imports. The replenishment stage in the United States has basically ended. After a brief decline after the outbreak, the inventories of manufacturers and wholesalers soon increased to more than the pre outbreak level. U.S. retailers are still in the stage of replenishing inventory, but it is mainly dragged down by the auto and parts industry. If the auto and parts industries are removed, retailers’ inventories have also returned to more than pre epidemic levels.
The overall trend of US economic recovery will continue
We believe that the overall trend of U.S. economic growth will not change. The year-on-year growth rate of non seasonally adjusted real GDP data is still significantly higher than the potential growth rate of about 2% of the U.S. economy. The unemployment rate is still at a low of 3.6%, which is one of the Fed’s direct policy objectives, and the unemployment rate is not affected seasonally. We believe that the Fed’s monetary policy may not be affected by the GDP data in the first quarter. The Fed has a high probability of raising interest rates by 50 basis points in May and may raise interest rates near the neutral interest rate of 2.4% by the end of this year.
Risk tips
Geopolitical risks exceeded expectations, and the Fed tightened more than expected
