Today’s update on GDP held little news, but largely cemented what was already known: the economy grew at a solid pace in the first quarter, although not as strongly as in recent quarters.
The third estimate for Q1 indicated growth of 2.0% flat – down from a previous estimate of 2.2%. But there’s more to those numbers.
Consumer spending growth slowed considerably to 0.9% after clocking in at 4.0% in Q4. Perhaps more notably, spending on goods decreased outright, with spending on durable goods falling by 2.1% for the quarter.
Beyond the slippage in consumer spending, the other bit of news of note was the upward revision in the GDP price deflator, from a previously reported 1.9% to 2.2% for the quarter. With that revision, that indicator of inflation has exceeded 2.0% for three consecutive quarters, providing further evidence of building price pressures.
The slowdown came on the heels of three consecutive quarters of growth near 3%, but it’s too soon to sound any alarm bells about a slowdown. For over two decades, reported first quarter GDP growth has lagged the duration of the year by an average of more than 1.0%. The slowdown in consumer spending in particular may raise an eyebrow, but the softer result should be viewed with a healthy dose of skepticism. Growth in the second quarter is largely believed to have regathered momentum, with expectations once again near or above 3.0%.
Consumer confidence remained near an 18-year high in June, and labor market indicators remained strong, helping to support a generally positive outlook for the consumer sector and future spending growth. Although higher than in the prior week, jobless claims remained near multi-decade lows last week at 227,000. With job openings at near-record highs and unemployment at multi-decade lows, optimistic consumers appear ready, willing, and able to do their part to keep the economy on track.
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