Despite a multitude of challenges—slowing global growth, the partial government shutdown, trade policy uncertainties, a strong U.S. dollar—the U.S. economy showed its resilience in the first quarter, growing a solid 3.2 percent at the annual rate.
This was the strongest first quarter of growth since 2015. The data were buoyed by robust contributions from service-sector consumption, exports and state and local government spending, with notable drags on growth from durable goods spending and housing. Weaker consumer purchases stemmed largely from sharp declines in motor vehicles and parts activity, among other categories.
Nonetheless, the larger story here remains the strength in the top-line number, which exceeded consensus estimates and was significantly better than what was predicted just a few weeks ago. As such, the U.S. economy should now expand by around 2.7 percent in 2019—an improvement from what I might have forecasted prior to this release. As a reminder, real GDP rose 2.9 percent in 2018, or 3.1 percent from Q4:2017 to Q4:2018. The was the best year-over-year rate since 2005.
In the first quarter figures, goods consumption declined 0.7 percent at the annual rate, weighed down by a whopping 5.3 percent decrease in durable goods spending (see the motor vehicles discussion above) but helped by a 1.7 percent increase for nondurable goods activity. I would expect automotive sales to improve moving forward, which should help boost second quarter growth. At the same time, nonresidential fixed investment rose a modest 2.7 percent, largely on intellectual property spending. Equipment and structures investment was soft, but business spending on inventories added 0.65 percentage points to headline growth.
Meanwhile, goods exports rose an annualized 4.7 percent in the first quarter, with goods imports off 4.4 percent. Therefore, net exports added 1.03 percentage points to real GDP growth, the strongest contribution since the second quarter of 2018.