There’s a distinct and sharp downward trend at the beginning of almost every year since 2011, only to hit a trough in June and accelerate to a peak by the end of the year. In addition to economic surprises (relative to forecasts), realized first-quarter GDP has noticeably underperformed other quarters since the financial crisis, for various reasons.
The most recent evidence of the first quarter seasonal weakness came in the form of disappointing March retail sales numbers, which not only missed consensus estimates but also included downward revisions to prior months’ readings.
However, the chart also highlights the trend for second-half recoveries in growth. Notwithstanding these seasonal characteristics, the ongoing improvements in labor markets fueling rising incomes, falling oil prices boosting disposable income growth globally, and the rising confidence of business for capital expenditures and investments all point to a recovery in growth in the second half.
As the first quarter data fade in the rear view mirror, we still continue to expect eventual better economic numbers to meet the conditions the Fed laid out for raising rates: continued improvements in the labor market along with reasonable confidence of inflation returning to target over the “medium term”.
Jeffrey Rosenberg, Managing Director, is BlackRock’s Chief Investment Strategist for Fixed Income, and a regular contributor to The Blog. You can find more of his posts here.