Hopes are continuing to dim for breakout first-quarter growth, as economists scale back expectations.
Barclays became the latest to capitulate, as it slashed its first quarter estimate for gross domestic product from 2.5 percent all the way to 1.5 percent.
The firm’s economists see a number of factors beginning to take shape that stand in the way of a once-robust outlook.
“Incoming data during the quarter has suggested less momentum than previously anticipated,” Barclays said in a note to clients.
Part of the reason for the low numbers is statistical, economists Michael Gapen and Pooja Sriram said. That is, the Bureau of Economic Analysis’ method of seasonal adjustments has resulted in multiple low first-quarter accounts over the years, and Barclays expects the same issue to be repeated this year.
However, they found other fundamental weaknesses: a 5 percent decrease in residential investment, after a jump of 12.8 percent in Q4 of 2017, and a decline in private consumption growth from 4 percent in the previous period to 1 percent for the first three months of this year.
Net exports also are likely to pull down GDP by 0.9 percentage points, but will be offset by a 0.9 point contribution from inventories.
The weaker residential numbers indicate that the benefits from the tax cuts Congress passed in December have not worked their way fully into the economy.
Barclays thinks “the effects of the tax plan, in our view, are likely only starting to be felt now by households.” Also, “housing activity data has been mixed, which we believe owes partly to the lagged effects of the modest rise in mortgage interest rates, uncertainty about the effects of the tax package on housing demand, and payback from the solid 12.8%” quarterly growth in Q4.
The good news at least is that Barclays still expects the second quarter to show 3 percent growth, a number the Trump administration has targeted both as a sign that the economy is out of its post-recession doldrums, and as a level to pay for the $1.5 trillion in tax cuts.
The Federal Reserve expects full-year growth to be 2.7 percent.
Barclays Q1 GDP forecast is below the 2 percent expectation in both CNBC’s Rapid Update and the Atlanta Fed’s GDPNow trackers. The latter measure once put Q1 expectations at 5.4 percent, which would have been the best quarter of the recovery, but that has fallen back steadily since.
WATCH: One reason why economic optimism has diminished.