The preliminary 1Q2019 GDP data released showed a much stronger growth than expected. It grew 3.2% q/q annualized from 2.2% q/q in 4Q2018, surpassing market expectations of 2.3%. On an annual growth basis, the economy expanded by 3.2% y/y from 3.0% y/y in 4Q2019. Growth was supported by an upside in inventories, net exports and private consumption.

Still, we feel there are some yellow caution flags. The 1Q2019 GDP figure which was boosted by temporary factors such as higher inventories and a slowdown in imports will take a hit on the potential growth once they start to wear off. We see room for the GDP growth to cool to around 2% as we move ahead. With the contribution to growth from fiscal stimulus peaking and will begin to wear off this year, added with the impact from the aggressive rate hike in 2018, we expect the GDP to come in around 2.1% for the full year of 2019. The odds for a rate cut in 4Q2019 or 1Q2020 are now high in our cards too.

• The preliminary 1Q2019 GDP data released showed a much stronger growth than expected. It grew 3.2% q/q annualized from 2.2% q/q in 4Q2018, surpassing market expectations of 2.3%. On annual growth basis, the economy expanded by 3.2% y/y from 3.0% y/y in 4Q2019.

• Despite the GDP figure suggesting a stronger growth, looking at the details, these did exhibit some signs of a less exciting scenario as we go forward. Growth was supported by an upside in inventories, contributing 0.65 percentage point (ppt) to the growth from 0.11ppt in 4Q2018. Besides, net exports contributed positively by 1.03ppt in 1Q2019 from a decline of 0.08ppt previously. There was a pickup in consumer spending. Retailers enjoyed strong sales gains in March after a lacklustre February. Personal consumption expenditure rose albeit slowly by 1.2% q/q from 2.5% q/q in the previous period.

• Still, we feel there are some yellow caution flags. The 1Q2019 GDP figure which was boosted by temporary factors such as a boost in inventories and a slowdown in imports will take a hit on the potential growth once they start to wear off. We see room for the GDP growth to cool to around 2% as we move ahead.

• Besides, 2018’s growth was boosted by fiscal stimulus with huge tax cuts and a big increase in federal spending. But the contribution to growth from fiscal stimulus is peaking and will begin to wear off this year. Also the impact from the aggressive rate hike in 2018 should start kicking into the economic activity. So we expect the GDP to come in around 2.1% for the full year of 2019. The odds for a rate cut in 4Q2019 or 1Q2020 are now high on our cards too.

Source: AmInvest Research - 29 Apr 2019