The good news is the current reading of -0.42 isn’t indicating an imminent contraction or recession–by comparison, the reading was -2 on the eve of the financial crisis. But this week’s number does suggest that second quarter U.S. GDP growth should be around 2%. While this isn’t awful, and is in-line with the post crisis norm, it’s a long-way from the +3% growth that most economists are expecting.
It’s possible the March reading will be revised upwards in the coming months. And in any case. investors should never put too much emphasis on any one number. That said, if the March CFNAI does prove to be an early indication of a weaker-than-expected second-quarter rebound, this has several implications for investors.
A softer rebound will give the Fed even more latitude to take its time.
While the Fed is still likely to start raising rates this fall, we may see only a single hike in 2015, rather than two or three.
Low long-term yields.
A weak second quarter would provide even more evidence that long-term yields will remain low.
A stalling dollar.
Finally, softer U.S. growth, particularly in the context of unexpectedly strong growth from Europe, may cause at least a temporary stall in the dollar rally. The silver lining is that while a soft economy will not be great for domestic sales, it would give U.S. exporters a bit of breathing room.
Source: Bloomberg
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog and you can find more of his posts here.