Advance GDP 2.3% vs 2.0 Consensus: Consumer Spending Weakens

Despite tax cuts expected to boost consumer spending, the Advance GDP report shows consumer spending weakened.

The deceleration in real GDP growth in the first quarter reflected decelerations in PCE, residential fixed investment, exports, and state and local government spending. These movements were partly offset by an upturn in private inventory investment. Imports, which are a subtraction in the calculation of GDP, decelerated.

Price Deflators

• The GDP price deflator for the report was 2.0%.
• The price index for gross domestic purchases increased 2.8 percent in the first quarter, compared with an increase of 2.5 percent in the fourth quarter.
• The PCE price index increased 2.7 percent, the same increase as in the fourth quarter.
• Excluding food and energy prices, the PCE price index increased 2.5 percent, compared with an increase of 1.9 percent in the fourth quarter.

Personal Consumption Expenditures

Real Personal Consumption Expenditures (PCE) rose 1.1%, the weakest since the second quarter of 2013. Spending on goods declined 1.1%.

Real Final sales, the bottom-line measure of the economy was 1.9%.

Key Contributions to GDP

• PCE: .73
• Goods (a subset of PCE): -0.24
• Services (a subset of PCE): 0.97
• Fixed Investment: 0.76
• Residential (a subset of fixed investment): 0.0
• Change in Private Inventories: 0.43
• Exports: 0.59
• Imports: -0.39
• Government Expenditures: 0.20

All in all, there were few surprises in the report. One standout is net exports at 0.20. GDPNow had exports at 0.55 and imports at -0.85, a net of -0.30.

Mike “Mish” Shedlock