Excerpt: “Net exports—exports minus imports—added 1.03 percentage points to the quarter’s 3.2% GDP growth rate.”
Higher exports, inventory investment helped offset slower rate of spending by consumers, businesses
[Harriet Torry, Sarah Chaney | April 26, 2019 | The Wall Street Journal]
Gross domestic product—the value of all goods and services produced in the U.S., adjusted for inflation—rose at a 3.2% annual rate from January through March, the strongest rate of growth for the first quarter in four years. Compared with the first quarter a year ago, the economy grew 3.2%.
Imports fell following a jump in the second half of last year in anticipation of potential tariffs the Trump administration had threatened to impose. Those tariffs haven’t gone into effect due to continuing trade talks between Washington and Beijing.
Net exports—exports minus imports—added 1.03 percentage points to the quarter’s 3.2% GDP growth rate. That was the category’s largest boost to growth since the second quarter of last year.
Consumer spending, however, which makes up two-thirds of economic activity, rose at a mere 1.2% rate in the first quarter, down from a strong 2.5% in the fourth quarter of 2018. Americans reined in purchases of big-ticket items like vehicles and their spending on services.
Still, the GDP report marked a turnaround from a gloomy start to the year, when the economy looked close to stalling due to challenges including a partial U.S. government shutdown, market turmoil and slowing global growth. The Atlanta Fed’s GDPNow tracker at one point estimated 0.3% growth for the quarter. But the outlook brightened as the Federal Reserve shelved plans to raise interest rates this year, the shutdown ended in late January, stocks started climbing toward new highs, China’s economy strengthened and steadily improving U.S. economic data trickled in, much of it delayed by the shutdown.
“While the [first quarter] boost from net trade and state and local government spending is unlikely to be repeated in [the second quarter], the main message is that private consumption and investment are slowing down only gradually,” said Brian Coulton, chief economist at Fitch Ratings, in a statement.
The report offered evidence of solid, but not accelerating, corporate demand.
Nonresidential fixed investment—which reflects business spending on software, research and development, equipment and structures—rose at a 2.7% rate, pulling back from 5.4% in the fourth quarter.
Spending on intellectual property grew strongly, at an 8.6% pace, but spending on structures declined 0.8%.
Trade flows have been unpredictable in recent months, particularly with China. Analysts say firms boosted imports in the fourth quarter of 2018 ahead of an anticipated increase in tariffs starting Jan. 1, which ultimately didn’t materialize. Nor did tariffs increase on March 1, due to progress in U.S.-China trade talks.
Another volatile category, inventory investment, boosted growth in the first quarter. The Commerce Department said nonfarm business inventories added 0.67 percentage points to growth from January to March for the third consecutive quarter of inventory accumulation. The Commerce Department said the acceleration reflected an upturn in manufacturing inventories for durable- and nondurable-goods industries.
After stripping out the volatile categories of trade, inventories and government spending, sales to private domestic buyers rose at an annual rate of 1.3%—a slower pace than the overall GDP number.
The first quarter is traditionally the weakest of the year, though seasonal adjustments in federal statistics should account for that.
The current slow-but-sturdy expansion, which began in mid-2009, is set to become the longest on record in the second half of 2019.
The housing sector was a headwind for growth in early 2019 as residential investment fell at a 2.8% annual pace, marking the fifth straight quarter of decline.
Overall government expenditures were up at a 2.4% annual rate in the first quarter. While federal government spending was flat, state and local outlays rose at a 3.9% annual rate. The Commerce Department cited a turnaround in investment, most notably in construction of highways and streets.
In a potentially alarming sign for policy makers at the Federal Reserve, a measure of overall inflation dipped compared with the prior quarter. The price index for personal-consumption expenditures increased at a 0.6% pace in the first quarter, compared with 1.5% in the final quarter of 2018. Core prices—which exclude food and energy—rose at 1.3% rate.
Weak price pressures are a negative sign for Fed officials, who view low inflation as a potential barrier toward further interest-rate increases. Officials seek to keep inflation at 2% because they see that as consistent with a healthy economy: Inflation persistently below that level can be a signal of weak demand. Fed policy makers signaled last month they didn’t expect to change rates in 2019. They hold their next policy meeting on Tuesday and Wednesday.
While consumer spending was relatively weak in the first quarter despite low unemployment, there are signs it is poised to pick up in the second quarter. A separate report from the Commerce Department last week said retail sales increased 1.6% in March, the strongest month-over-month growth in a year and a half.
Early in the first quarter, households appeared spooked by the government shutdown that dragged through late January and severe winter weather. The Commerce Department estimated that the furloughing of federal workers subtracted 0.3 percentage point from growth in the first quarter after 0.1 percentage point in the fourth.
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