US GDP came in below expectations registering just +0.2% Q1 growth – well below consensus expectations (+1.0%) and the +2.2% Q4 14 level. The Fed refers to a number of ‘transitory factors’ -the disruption at west coast ports (which caused -70% decline in cargo activity through Feb), very poor Jan weather (the ‘deep freeze’ which meant that consumers couldn’t get out to stores) and the energy related slowdown in production and investment (30 years ago, when oil price plummeted, +6.4% GDP growth in q3 1985 became just +1.9% in q2 1986!).
Our concern is that factors like the moderating pace of job creation and strength in USD may persist for longer than just Q1 and have a dampening impact on growth estimates across the full year. To which, we expect the consensus view around Q2 GDP to be cut to around +2.5% (from +3.5%) and the expectations on when the Fed raises rates pushed back towards the end of this year… the chance of a June rate hike now looks remote.
QMG data has been highlighting the softer trends that appear in this report (see our recent note ‘softer trends, but remain positive’) – and we would refer investors to opportunities in Europe or Japan at present – markets where our data provides more constructively positive insight.
As regards our view on the US, the positives from this report are:
- consumer spending rose +1.9% (exceeding the +1.7% consensus expectation and we still don’t think the energy gains have yet been spent?)
- real disposable income rose +6.2% in 1Q which is the strongest gain since 2012, and
- housing looks better –posting a quarterly gain despite the severe winter weather
Aligned to these points, and consistent with where our data remains positive, we would highlight the following:
POSITIVE Autos (particularly engine, truck and RV manufacturers) – our focus list contains names like CVCO, WGO, DW, NAV and CMI
POSITIVE Consumer – opportunities across auto retailers (positive on AN) versus auto parts retailers (negative AAP and AZO) and data remains very positive across personal products/staples (take a look at SBH)
POSITIVE Materials – data is still very supportive for companies like VMC, EXP (plays into the housing/construction related theme) and PX
QMG Sales data – US50.1 – Auto Retailers
QMG Sales Data – US50.3 – Auto Parts Retailers