This is the BEA’s initial guess at the first quarter’s GDP growth rate, and it estimates output to have risen by just 0.7%, following 2.1% in the previous quarter and the lowest since -1.2% in first quarter 2014. Real final sales (GDP less inventories) were better at 1.6%. Real gross domestic purchases (GDP less exports plus imports) were estimated at 0.6%, following a 3.9% rise in the fourth quarter. Headline nominal GDP rose by 3.0% from 4.2%. Aggregate inflation for the entire economy, as measured by the GDP price index, was pegged at 2.3%, up from the fourth quarter’s 2.1% growth rate. Excluding food and energy, the PCE price index rose 1.9% in the quarter (annualised), which was tangibly higher than the 1.3% rate in the fourth quarter.
Underlying sector growth in the quarter paints a mixed picture of activity with personal consumption increasing by just 0.3% (lowest since fourth quarter 2009) and inventories which wiped off 0.93 percentage points. Business investment was more favourable, rising 9.4%, led by a sharp 22.1% acceleration in structures investment. In terms of actual percentage-point contributions, the first-quarter change in economic activity was driven by: 1) business investment (1.12 percentage points), 2) residential investment (0.5 percentage points), 3) personal spending (0.23 percentage points), and 4) trade (0.07 percentage points). Meanwhile, inventories subtracted 0.93 percentage points, while government spending subtracted 0.3 percentage points.
We know first-quarter GDP in recent years has been distorted downward by “residual seasonality,” this quarter was nevertheless very weak even by the standards of the average first-quarter growth rate of the last 7 years since the start of the expansion (1.1%). While some of this can be blamed on warmer weather (less spent on heating) and delayed tax refunds, the reality is consumer spending has simply been pretty weak this past quarter—auto sales in particular (durable goods fell 2.5%). This is despite the sharp improvements in consumer sentiment and steady employment growth. Business investment was a little more encouraging, even though companies returned to inventories liquidation, but this is now back toward more ‘normal’ levels. As the dollar has levelled out, trade has started to improve. If we look at real final sales of domestic product (which exclude the impacts of trade and inventories) to look at true domestic demand, this was up 2.2% annually, versus 1.9% for real GDP. As far as the Fed is concerned, this is largely backward looking data, and as mentioned recently by Stanley Fischer, first-quarter data in particular is somewhat suspect. The Fed is already paying very close attention to second-quarter data, where estimates currently stand at 2.7%.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.