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U.S. GDP Grew By A Surprising 3.2%

U.S. GDP Grew By A Surprising 3.2%

But the Beauty is in the Eye of the Beholder

  • U.S. real GDP jumped by 3.2% q/q during the first quarter, easily beating most economists’ expectations.  The acceleration from the 2.2% increase in the fourth quarter raises the y/y to 3.2%.
    • The re-acceleration was somewhat surprising considering the headwinds faced in late 2018 and early this year: a nasty stock market correction, partial government shutdown, inclement weather, slower global growth and tariffs and trade policy tensions. While the overall theme should remain positive, the fact that half of the contribution to growth came from inventories & net trade (predominantly via falling imports) may change the narrative as both could be headwinds in Q2 assuming trade negotiations continue to be constructive.
      • Consumer spending: Growth slowed to just 1.2% (this is hopefully seasonal as first quarters)
        • Personal consumption was 0.8% which was the second lowest reading since 2010.
      • Business investment: Grew by +2.7%, thanks to spending on intellectual property.
      • Residential construction: Fell by 2.8%, the fifth decline in a row.
      • Government investment: Up by 2.4%, due to higher spending by states and local governments
      • Net trade: Added 1% point to the growth rate, due to rising exports and falling imports.
      • Inventories: Added 0.7% points to the growth rate (inventory stockpiling caused by tariff concerns which will likely reverse in Q2)
      • Core PCE in Q1 fell to 1.3%, from 1.8% in the prior quarter.
  • As the volatile trade and inventory components normalize, some of what made the first quarter strong could weigh on the second quarter as benefits were “pulled forward”…  Look for this to analysts to focus on the “Q2 inventory drag” and a rewidening of the trade gap after the trade deal is consummated.  As a result, the economy will need consumption to re-accelerate to fill this gap.
  • Most revised forecasts still expect real GDP to grow above 2% for the remainder of the year, reflecting healthy gains in demand and production, a pick up in consumption, renewed increases in residential investment growth somewhat offset by slower inventory investment and softer growth in exports.


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