J.P. Morgan Now Projects Stronger Q2 GDP

Money, US, $100 billsThis morning's report from the Commerce Department on retail sales in April was strong enough that we expected it to underpin a stronger climate for gross domestic product in the second quarter. It turns out that we were not alone. The research team at J.P. Morgan Chase & Co. (NYSE: JPM) is upgrading its second-quarter GDP target on the heels of the report.

We saw that the firm's new target is 2.0% for second-quarter GDP. The prior target was 1.5%, although the firm did caution that it is still very early in the quarter to be ratcheting the expectations higher. Today's seasonally adjusted retail sales figure was $419.03 billion, and that was actually up 3.7% in raw dollars from a year ago in retail and food services.

The report said:

The strength in the April figure was fairly broad-based, with particularly good gains reported for retailers of building materials, clothing, general merchandise, and non-store retailers (primarily internet). Even motor vehicle and parts dealers saw a 1.0% increase, in spite of an already-reported decline in automaker unit sales. The picture on the consumers' response to the beginning of the year tax increases has now done a complete round-trip. At first, initial January and February data indicated a surprising degree of resilience; March data and downward revisions then appeared to reveal a significant weakening in consumer spending. Now, with the latest data, consumers' once again appear unfazed by the fiscal restraint that took place earlier in the year.

As a reminder, consumer spending accounts for what is generally accepted as 70% of GDP throughout the year. If retail sales are coming in much stronger than expected, then it becomes close to certain that GDP will be better than expected as well.

Filed under: 24/7 Wall St. Wire, Active Trader, Analyst Calls, Economy Tagged: JPM
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