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US Q1 GDP 3.2% - Tops Expectations

April 29, 2019

Real gross domestic product (GDP) increased at an annual rate of 3.2 percent in the first quarter of 2019 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2018, real GDP increased 2.2 percent.

Wall street was only expecting Q1 GDP of 2.5%.

Brian Schaitkin, Senior Economist, The Conference Board said, While this headline number is only a modest slowdown from the 3.8 percent pace of growth that prevailed during the middle of last year, the stronger than expected estimate is primarily the result of temporary contributions from inventories, trade, and government spending that are unlikely to be sustained during the year. Private inventory build remained rapid in the first quarter, a trend unlikely to continue in a slowing sales environment. The trade deficit shrank as import growth ebbed, but this result is unlikely to repeat given the strength of the US dollar. Support from increased government spending will fade towards the end of 2019. Durable goods spending was particularly weak, illustrating recent turbulence in manufacturing.

Based on the slowing trend in consumption and non-residential investment growth, the US economy is expected to grow at 2.5 percent in the next quarter, and 2.3 percent in the second half of 2019, according to The Conference Board’s latest forecast. Still, fundamental factors are likely to keep growth above its two percent long-term trend for the time being. A shift in Federal Reserve monetary policy will keep interest rates low, as long as inflation stays under control. Low rates may support a stagnant housing market and help the currently weak growth environment for durable goods purchases. With unemployment low and wage growth continuing to accelerate, domestic spending will grow at a solid pace.

While overall GDP growth remains fairly solid, profits are set to come under pressure this year. Firms face higher payroll costs due to tight labor markets which are cutting margins due to a lack of ability to pass those costs onto consumers. External profits may also decline due to uncertain economic momentum in Europe and China. To protect earnings as costs rise, it is critical that firms boost productivity by continuing to increase investments in software and research and development. These categories have enjoyed rapid growth since the beginning of 2018 and will play a key role in helping firms harness new technologies."

The Bureau’s first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 2). The "second" estimate for the first quarter, based on more complete data, will be released on May 30, 2019.

The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, state and local government spending, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased (table 2). These contributions were partly offset by a decrease in residential investment.

The acceleration in real GDP growth in the first quarter reflected an upturn in state and local government spending, accelerations in private inventory investment and in exports, and a smaller decrease in residential investment. These movements were partly offset by decelerations in PCE and nonresidential fixed investment, and a downturn in federal government spending. Imports, which are a subtraction in the calculation of GDP, turned down.

Current dollar GDP increased 3.8 percent, or $197.6 billion, in the first quarter to a level of $21.06 trillion. In the fourth quarter, current-dollar GDP increased 4.1 percent, or $206.9 billion (table 1 and table 3).

The price index for gross domestic purchases increased 0.8 percent in the first quarter, compared with an increase of 1.7 percent in the fourth quarter (table 4). The PCE price index increased 0.6 percent, compared with an increase of 1.5 percent. Excluding food and energy prices, the PCE price index increased 1.3 percent, compared with an increase of 1.8 percent.

Personal Income (table 8)

Current-dollar personal income increased $147.2 billion in the first quarter, compared with an increase of $229.0 billion in the fourth quarter. The deceleration reflected downturns in personal interest income, personal dividend income, and proprietors’ income that were partly offset by an acceleration in personal current transfer receipts.

Disposable personal income increased $116.0 billion, or 3.0 percent, in the first quarter, compared with an increase of $222.9 billion, or 5.8 percent, in the fourth quarter. Real disposable personal income increased 2.4 percent, compared with an increase of 4.3 percent.

Personal saving was $1.11 trillion in the first quarter, compared with $1.07 trillion in the fourth quarter. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 7.0 percent in the first quarter, compared with 6.8 percent in the fourth quarter.

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