US economic growth in the first quarter will match the modest pace reported in last year’s Q4, according to estimates compiled by The Capital Spectator. The median Q1 forecast points to a 2.5% increase in output, the gain reported for 2017’s final three months, according to the Bureau of Economic Analysis.

The median 2.5% estimate for Q1 data marks a downshift from last month’s 2.9% projection. The current forecast is strong enough to keep the nine-year expansion alive, but the current outlook suggests that earlier projections for stronger output in 2018 are fading.

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Economists at Wells Fargo last week blamed an uptick in inflation as a factor that’s weighing on expectations for Q1.  Citing last week’s unexpected dip in retail sales for February, the bank advised “that inflation has begun to rise and may be adversely affecting consumer spending,” which in turn is creating a headwind for the US macro trend in early 2018.

We maintain the view that first quarter consumer spending is likely to come in softer than expected, held back in part by firmer inflation readings. That said, we do not see evidence of an erosion in consumer fundamentals and expect consumer spending to pick up throughout the rest of this year.

A key question in the days ahead: Is the sharp deceleration in last week’s growth estimates reflected in the Atlanta Fed’s GDPNow model and CNBC’s survey data an early warning of things to come? In both cases, the Q1 growth projection slumped to 1.8%. If accurate, US economic output is on track to decelerate to the weakest gain since the slowdown to 1.2% in 2017’s first quarter.

But if the February data for employment growth is a clue, the macro trend will remain robust. Indeed, private employment surged last month, boosting the labor market’s annual rate of growth to 1.8%, the highest in six months.

Using the strong payrolls report as a guide suggests that the softer GDP estimates may be due to edge higher ahead of the government’s preliminary Q1 release on April 19. Meantime, the outlook is mixed, depending on the dataset. The three monthly declines in retail spending through February, for instance, tempers any optimism linked to payrolls.

Meantime, the Federal Reserve tomorrow is expected to lift interest rates and publish new economic forecasts. The crowd will be keenly interested to learn if the central bank will paint a brighter outlook vs. the current Q1 GDP projections.