JP Morgan cuts Q2 forecast for U.S. growth to 1%

Economists at J.P. Morgan have slashed their growth forecasts for the U.S. economy to just 1% for the second quarter.

The move means economists believe that gross domestic product (GDP) is going to slow down in Q2, cutting their forecast from the earlier 2.25% by more than half. That also means the estimates are much lower compared to the first quarter GDP figures of 3.2%.

According to the JP Morgan economists, the scaling back is informed by April’s bad report on durable goods. That report was particularly downbeat on capital goods as well as shipments. It also follows last week’s data on April retail sales that missed expectations.

As such, the firm says, the suggestion is that Q2 activity growth sharply points south and is far from the pace witnessed in the first quarter.

GDPNow, a growth tracker of the Federal Bank of Atlanta, simply Atlanta Fed, has ticked up the second quarter growth at 1.3%.

Meanwhile, J.P. Morgan has also revised their outlook on the Fed, saying that they do not anticipate its next move to constitute a hike to interest rates.

The forecast now is more of “evenly distributed” with the economists saying it could be anywhere between an interest hike and a cut. According to the JP Morgan analysts, there is “little appetite” for FOMC in terms of having “insurance ease to goose inflation.”

On Thursday, the PPI data on the manufacturing and services sector was also uncharacteristically weak, with the 2.1% decline for manufacturers contributing to the stock market sell-off.

There was also heavy buying in Treasury’s, an aspect that saw yields tumble to lows last seen in 2017. Notably, the low yields reflect the current concerns about the perspective direction of the economy. This is because yields move converse to price, hence the concern. Yields for 10-year Treasury bonds was 2.32% on Friday but had slipped to 2.29% on Thursday.

J.P. Morgan notes that the U.S. economy’s growth faces risks from the uncertainty surrounding the trade war and a general slowdown in the global economy.