A communication hauls a shipping container at Yusen Terminals (YTI) on Terminal Island at the Port of Los Angeles in Los Angeles, California
Mike Blake | Reuters
J.P. Morgan economists whispered they now see much slower second-quarter growth of just 1%, down from their prior forecast of 2.25% and way off the 3.2% reported in the cardinal quarter.
“The April durable goods report was bad, particularly the details relating to capital goods orders and shipments. Take place on the heels of last week’s crummy April retail sales report, it suggests second quarter activity evolution is sharply downshifting from the first quarter pace, ” the economists wrote.
The Atlanta Fed’s GDP Now tracker has GDP growth for the opening quarter at 1.3% for the quarter.
The J.P. Morgan economists also changed their view on the Fed, and now do not expect the next move to be an property rate hike.
“We had previously expected the next move from the Fed would be a hike, albeit at the very end of our forecast perspective in late 2020. We now see the risks of the next move as about evenly distributed between a hike and a cut. We still sense itty-bitty appetite on the FOMC for an insurance ease to goose inflation, but we see rising odds of ‘your father’s rate cut’: one prompted by downside rise risks,” they wrote.
The durable goods report follows Thursday’s PPI manufacturing and services data that was also surprisingly blurred. That data helped fuel a stock market sell-off and buying in Treasurys, which sent yields to 2017 lows. Nets move opposite price, and the low yields reflected concern about the economy.
The 10-year Treasury yield was at 2.32% Friday, after skim as low as 2.29% Thursday. The fed funds futures market is reflecting expectations for more than 25 basis points of easing this year, and at scarcely another cut in 2020.
“Net, net, business investment in the future is sputtering at the start of the second quarter as uncertainty and geopolitical risks are a heavy stability that appears to be a big drag on companies’ willingness to order up new equipment,” said Chris Rupkey, MUFG Union Bank chief pecuniary economist. “Business confidence is clearly lacking in the manufacturing sector of the economy.”
Rupkey added that corporate chief pecuniary officers may believe, as some surveys suggest, that the odds are increasing for a recession so they have canceled requisitions in March and ordered less equipment in April.
The J.P. Morgan economists said the key risks they see for U.S. growth include the uncertainty from the work war, impacting business sentiment, and global economic slowing.
In the April durable goods report, total orders at producers declined 2.1% last month, due to large declines of aircraft and motor vehicle orders. Beyond transportation, the J.P. Morgan economists acclaimed that orders were flat last month and revised significantly lower in March.
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