Do call it a comeback! Why the economy may be poised for a Q2 snap back

Into the futures: 10-year Treasurys
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Economic data always threaten to bear us back, like "boats against the current" in the closing line of F. Scott Fitzgerald's The Great Gatsby, ceaselessly into the past.

Such was the case this past week, when a surprisingly weak initial gross domestic product report showed that the American economy grew at an annualized rate of just 0.2 percent in the first quarter. Fresh concerns about the economic recovery ensued, sending stocks on a roller-coaster ride and recalibrating expectations about the economy.

But the most important use of backward-looking data is to sketch out what the future may bring. And the outlook for the American recovery may be bright indeed.

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Thursday brought two very encouraging signs about the labor market. Initial unemployment claims fell to 262,000 for the week ended April 25th, the lowest reading in 15 years. And in the more backward-looking employment cost index, U.S. wages were shown to have risen by 2.6 percent in the first quarter versus the year prior.

On Friday, investors should get a decent flavor of how the past month shaped up, when the April employment report is released. Many economists are expecting to see positive signs in the report.

"Given the sturdy trends in jobless claims and tax receipts, we expect a meaningful rebound in April employment," wrote Joe LaVorgna, chief US economist at Deutsche Bank, in a Friday note.

More generally, the fact that GDP has tended to disappoint in the first quarter—only to bounce back substantially in the second—is a trend that has been lost on few.

For instance, final GDP in the first quarter of 2014 (which fell considerably from the initial reading) came in at negative 2.1 percent; the Q2 reading that followed showed 4.6 percent annualized growth.

An analysis by CNBC's Steve Liesman found that over the past 30 years, annualized first-quarter GDP growth has come in at 1.87 percent while the economy has grown 2.7 percent. That was statistically significant enough to lead the GDP tabulators at the Bureau of Economic Analysis to remark to CNBC that "BEA is currently examining possible residual seasonality in several series."

Read MoreThe mysterious case of weak 1Q GDP, for 30 years!

The weather effect

A trader works on the floor of the New York Stock Exchange.
Getty Images
A trader works on the floor of the New York Stock Exchange.

This year especially, a GDP comeback could be in the cards.

"The upside to Q1 weakness is that it sets up a low hurdle for a nice bounce in Q2," given that harsh weather and port slowdowns likely weighed strongly on first-quarter growth, RBC chief US economist Tom Porcelli wrote in a Friday evening note to clients.

However, skepticism about the recovery still runs deep.

Many point to the bearish expectations of the Atlanta Fed's GDPNow tracker, which presciently predicted the first-quarter GDP reading. The same model is now forecasting just 0.8 percent growth in Q2.

Wall Street getting bitter dose of economic reality

However, the Atlanta Fed model badly missed the bounce-back in GDP in 2014, calling for annualized growth of 2.7 percent. That undershot the final reading by 40 percent.

Of course, better-than-expected growth isn't necessarily good for stocks. Chicago-based trader Jim Iuorio is warning clients that the second quarter could prove to be better than many expect, which may lead expectations of a Federal Reserve rate hike to be pulled forward.

That would likely hurt markets, as it would offer investors more attractive alternatives as they look to allocate their assets.

"The market has priced in a large amount of bad news and has left itself open to disappointment," Iuorio wrote in an emailed reply to CNBC. That paradoxical-sounding statement encapsulates the continuing "bad news is good news" environment.

—By CNBC's Alex Rosenberg.

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