Five reasons why the economy will bounce back in the second quarter
The US economy is set for a rebound in the second quarter.
First quarter economic data have been missing estimates more than they've been beating, but in a note Friday, Goldman's Jan Hatzius wrote that the economy looks set for a rebound in the second quarter:
"US macroeconomic data have disappointed expectations year-to-date. Q1 growth now looks likely to be significantly below trend. However, we think that the pattern of growth in 2015 will probably mirror that of last year, with weak growth starting off the year, followed by a bounce-back beginning in Q2."
Here are the five reasons why Hatzius believes economic growth will bounce back in Q2:
- The negative impacts of severe winter weather will finally thaw. Goldman estimates that weather-related weakness will shave up to 1% off Q1 GDP.
- Consumer spending will pick up. Consumers have saved most of their savings from lower gas prices; personal savings rose just as gas prices began to fall around last October. Hatzius wrote there's no obvious reason why consumers will be reluctant to increase their spending, especially because wages are picking up and consumer sentiment is strong.
- Household formation is picking up, despite the disappointing housing starts report for March.
- The economic drag of the oil crash will be less in the second half of the year and by 2016, the energy sector should be making a modest positive addition to GDP.
- Government spending tends to be a drag on growth in Q4 and Q1, removing as much as 0.6% from GDP on average over the last five years. And so, that seasonal effect will be absent in Q2.
Goldman Sachs forecasts Q1 economic growth at just 1.2%, but accelerating to 3.5% in the second quarter.
The Bureau of Economic Analysis will report the first estimate of Q1 GDP on April 29.
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