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Economists slash growth for fourth quarter after big retail sales drop

Economists slashed fourth-quarter GDP forecasts Thursday, and now see growth closer to 2 percent than 3 percent, after a surprise drop in December retail sales.

the CNBC/Moody’s Analytics Rapid Update, economists in the survey see growth tracking at a median 2.4 percent pace, down 0.7 percentage points.

December’s retail sales fell 1.2 percent, compared to an expected gain of 0.2 percent. Economists said the report, delayed by the government shutdown, was suspect since it was not consistent with other economic data, like strong December and January job gains.

“The most plausible economic explanation is that long-dormant wealth effects came back with a vengeance, and consumers slashed their holiday purchases when they saw their 401(k)’s going down the drain,” JP Morgan economists wrote. “At any rate, retailers subsequently added an above-trend 21,000 jobs in January (and private employers overall added 296,000 jobs), so it’s hard to see how that lines up with the December retail sales being the leading edge of more widespread weakness,”

JP Morgan cut its Q4 growth forecast to 2 percent from 2.6 percent.

Mark Zandi, chief economist at Moody’s Analytics said it is important to note that some economists have not yet updated GDP forecasts, and of those who have, the median is 2.2 percent. Last week, a narrowing of the trade deficit prompted economists to move up their forecasts, closer to 3 percent.

The 2.4 percent pace is closer to the trend prior to the tax cuts that took affect last year and gave a boost to growth.

Economists expect a 2 percent growth pace for the first quarter.

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