The Bureau of Economic Analysis said that real GDP grew by 1.1 percent in the first quarter, improving from the prior estimate of 0.8 percent. The revision included better data on nonresidential fixed investment and exports that previously reported, but it also found that consumer spending on services did not grow as fast as once thought either. Nonetheless, the bottom line was largely the same. The U.S. economy experienced relatively sluggish growth in the first quarter thanks to stagnant spending on consumer goods, declining business investment and still-soft export growth, even with improvements in this latest report.
Indeed, goods spending increased just 0.1 percent at the annual rate in the first quarter, with durable goods activity down 1.6 percent and nondurable goods purchases up 1.0 percent. Reduced motor vehicle sales were one of the larger factors for the decline in durable goods spending, subtracting 0.32 percent from real GDP in the quarter. At the same time, nonresidential fixed investment decreased by 4.5 percent in the quarter (an improvement from the 6.2 percent decline estimated earlier) on steep declines in spending on equipment and structures. Weak inventory growth also served as a drag on real GDP for the third consecutive quarter.
On the positive side, net exports and government spending added 0.12 percent and 0.23 percent, respectively, in the first quarter, with the latter coming primarily from state and local governments. Meanwhile, the positive contribution from net exports ended two straight quarters of declines, and it represented a shift from a drag on real GDP growth of 0.21 percentage points in the prior estimate. Goods exports rose by 1.1 percent at the annual rate for the quarter; whereas, goods imports declined by 1.3 percent. Yet, despite this progress, firms continue to struggle in their attempts to grow international demand, with first quarter activity increasing at a lower than desired pace.
Moving forward, we would expect second quarter real GDP growth to be around 2.5 percent, with the U.S. economy expanding by roughly 2.0 percent for 2016 as a whole.