There’s very little meaningful news in the updated GDP data. Estimated growth was basically unchanged, down just 0.1% from the prior estimate, to 2.2%.
Underlying the report is the long-term trend of Q1 GDP growth coming in weak relative to subsequent quarters for many years. Since the 1990s, first quarter GDP has lagged growth in the subsequent three quarters by an average of about 1.2%. While seasonal adjustments are intended to address such factors, that anomaly has been too great and existed for too long to simply ignore. As such, one should view the report with a skeptical eye.
On the surface, the sharp decline in personal consumption was notable, as spending on goods actually slipped into negative territory, driven down by a dramatic drop in durable goods purchases. After growing by 13.7% in the final quarter of 2017, durable goods dropped by 2.6% in Q1 on softer car sales.
One other cautionary note in the report came in the form of a modest weakening in corporate profits, which dipped 0.6% in the quarter. Despite the dip, profitability was still up over 4% from the first quarter of 2017.
Still, the data wasn’t universally disappointing. Business investment surged again, accounting for slight more than half of the overall gain. On top of that, business inventories were little changed – also a positive. Whether stronger business investment will be sustained remains to be seen, but the multi-year stretch of stagnant investment appears to have passed.
The bottom line is that the economy appears to remain generally on track, and – for now – the reported softening in the first quarter should be taken with a grain of salt. If growth in the second quarter also weakens, investors will have more reason to sit up and take notice.
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