1Q2019 Gross Domestic Product: First (“Advance”) Estimate

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In its advance (first) estimate of 1Q2019 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 +3.18% (2.3% expected), up 1.01 percentage points (PP) from 4Q2018’s +2.17%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 1Q2019 was 3.21% higher than in 1Q2018; that growth rate was slightly faster (+0.24PP) than 4Q2018’s +2.97% relative to 4Q2017.

All four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX) and government consumption expenditures (GCE) -- contributed to 1Q growth. As for details:

PCE – Growth in consumer spending decelerated for a third consecutive quarter. Spending on durable goods contracted (especially for motor vehicles) while spending on nondurables grew more slowly. Although health care spending jumped, overall consumer spending on services decelerated.

PDI – The contribution from private domestic investment increased; however, virtually all of the boost in PDI came from inventory growth. Also, both residential construction and nonresidential structures contracted more slowly. A stall in commercial spending on equipment was the major drag in this category.

NetX – Growth in exports and a collapse in imports pushed net exports to its highest contribution since 2Q2018.

GCE – While federal spending was flat, state and local spending rebounded.

The BEA’s real final sales of domestic product growth, which excludes the effect of inventories, rose to +2.53%, up 0.47PP from 4Q2018. 

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Observations by Consumer Metric Institute’s Rick Davis included the following:

-- The fact that imports added +0.58% annualized growth to the headline may be good for the headline, but it actually reflects softening import prices in the midst of generally weaker global trade.

-- Ultimately, and despite weaker core spending, the headline number rebounded into the "Goldilocks" zone of economic growth. We expect that policy makers will be really proud of this report.

“Unfortunately, that ‘Goldilocks’ moment was achieved through growing inventories, increased governmental outlays, crashing import values and materially understated inflation,” Davis concluded. “The temperature of the porridge might be just right, but the taste seems a little off.”

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.