First Quarter Real GDP Revised from 0.7 Percent to 1.2 Percent Growth

The Bureau of Economic Analysis reported that the U.S. economy grew 1.2 percent in the first quarter in newly revised figures. This improved slightly from the earlier estimate of 0.7 percent growth, but nonetheless, it continued to represent a slow start to the year. The upward revision stemmed mainly from improved data on consumer and business spending, even as the drag from inventory spending was somewhat larger.

To be fair, we traditionally have a sluggish first quarter followed by a strong rebound in the second quarter. My current forecast is for at least 3.0 percent growth in real GDP in the second quarter, with the economy expanding 2.2 percent for 2017 as a whole. Of course, these estimates might drift higher with passage of more pro-growth policies, especially in terms of the outlook later this year and into 2018.

Digging further into the data, consumer spending slowed to a near crawl in the first quarter, up just 0.6 percent at the annual rate. This was an improvement from the earlier estimate of 0.3 percent growth but well below the 3.5 percent growth rate during the fourth quarter. Durable goods spending declined 1.4 percent in this report, pulled lower by a 3.7 percent decrease in motor vehicles and parts. Spending on nondurable goods and services was also soft, up 1.2 percent and 0.8 percent, respectively. Overall, personal consumption expenditures added 0.44 percentage points to the top-line GDP growth figure, up from 0.23 percent in the prior release.

At the same time, the business investment picture was mixed. On the bright side, nonresidential fixed investment jumped 11.4 percent, its strongest pace in five years and boosted by large gains in spending on structures, up 28.4 percent. In addition, residential spending accelerated for the second straight release, up 13.8 percent in the first quarter. In sum, residential and nonresidential fixed investment contributed 1.84 percentage points to headline GDP. However, reduced spending on inventories partially offset this figure, subtracting 1.07 percent. In the previous estimate, the drag from inventories was 0.93 percent. The silver lining is that better spending on inventories in the second quarter should help to propel a rebound in growth.

Meanwhile, net exports served as a large drag on growth in the fourth quarter, with economic headwinds abroad and the strong U.S. dollar challenging manufacturers. That stabilized somewhat in the first quarter, with goods exports rising 8.4 percent and goods imports increasing 4.2 percent. As a result, net exports added 0.13 percent to real GDP. While that contribution was rather paltry, it was significantly better than the 1.82 percentage point subtraction to the headline number in the fourth quarter.

Finally, government spending subtracted 0.20 percentage points from real GDP, ending two quarters of positive contributions, with reduced spending at all levels. Federal government spending fell 2.0 percent, led by a 3.9 percent decrease in defense, and state and local government spending fell 0.6 percent.

 

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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