1Q2016 Gross Domestic Product: First (Advance) Estimate

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In its first (“advance”) estimate of 1Q2016 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) pegged growth of the U.S. economy at a seasonally adjusted and annualized rate (SAAR) of +0.54%, down 0.84 percentage points (considerably more than half) from 4Q2015’s +1.38%. The 1Q rate was below consensus expectations of +0.7%. Moreover, 1Q2016’s year-over-year growth rate was +1.95%, marginally slower than 4Q2016’s +1.98%.

Overall, groupings of GDP components show that personal consumption expenditures (PCE) and government consumption expenditures (GCE) contributed to 1Q growth. Private domestic investment (PDI) and net exports (NetX) detracted from it.

The quarter-over-quarter (QoQ) deceleration was a broad-based one, with much lower contributions from both consumer expenditures for goods (0.33% below 4Q) and commercial fixed investment (-0.33%) having the greatest impact. Imports (-0.13%), inventories (-0.11%), consumer services (-0.06%), and exports (-0.06%) continued the QoQ declines in growth rates. Only governmental spending showed an improved contribution to the headline number (+0.20%). 

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Consumer Metrics Institute summarized the GDP report as follows:

Although the headline remained positive, this is not a report that shows a robust economy. Among the troubling aspects of the report --

-- The growth rate for consumer spending took another significant hit, dropping substantially for the third consecutive quarter. In fact, the growth rate for consumer spending on goods was barely positive, at a miserable +0.03%. And non-discretionary spending on health care and housing provided most of the remaining growth in consumer services spending.

-- Private investment contracted for the first time since 1Q2011.

-- Exports went deeper into the red.

Looking at the past three quarters as a group, we can see a slow-motion slide into either stagnation or contraction. It is truly sad when stagnation looks to be the better alternative.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.