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When first quarter GDP is released on Wednesday morning, the consensus is: It will be bad.

But economists at Goldman Sachs think it will be even worse than it looks. As Goldman Senior Economist Spencer Hill wrote in a note released Monday, “Even though the coronavirus sudden stop occurred in the final weeks of the quarter, Q1 GDP is nonetheless set to be the weakest in a decade, confirming an economy already in deep recession.” Goldman is forecasting the official numbers as follows when they are released: a 4.8% annualized decline with a 3.5% drop in consumption (consensus estimates are -3.8% for GDP and -3.5% for consumption).

But, Hill continued, “while we expect the reported decline to be large, we believe economic reality during the quarter was even worse, with a first-print bias of 3-4pp concealing a ‘true’ GDP decline closer to -8¼% (and a consumption decline of -7%).”

In the report he points to three reasons. First, all advance GDP readings “reflect assumptions for not-yet-available source data, and this can attenuate growth readings during major economic inflections.” In other words, they suspect there is more bad news lurking out there that hasn’t fully been reflected in economic readings. Interestingly, the Goldman note points out that the GDP decline during the Lehman collapse ended up being twice as large as initially reported (-8.4% vs. -3.8% in Q4 of 2008).

Second, in certain industries including airlines, ride-sharing, spectator sports and live entertainment, Goldman warns that the “advance reading relies on partial source data or judgmental trends.” Finally, the “better-than-feared March retail sales and durable goods reports” may be due to the fact that business closures “limited access to accurate information.”

All told, Goldman’s Hill advises a rosier than expected number be met with skepticism. Because, as he puts it, they expect this first reading to capture, “less than two thirds of the actual activity decline.”

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