Summary Net exports robbed the GDP bank in the first quarter, slicing 3.2 percentage points off of the headline growth rate, inventories and government spending cuts took another 0.8 points and 0.5 points, respectively. Those effects swamped what was actually a decent quarter for business and consumer spending and put the headline number underwater with a contraction of 1.4%.
Some Genuine Weakening Is Being OverstatedFirst quarter GDP growth came in at -1.4%, which was well below the consensus expectation. As we wrote in a heads-up note yesterday, a lot of this was a function of a larger-than-expected increase in the trade deficit, which was presaged by the release of advance trade figures yesterday. Whether by design or circumstance, GDP math has some built-in features that in practice serve as counterweights to volatility. For example, a strong quarter for consumer and business spending is often associated with slower growth or outright declines in inventories and perhaps a drag from trade if imports outpace exports that quarter as well. After last quarter’s scorching hot 6.9% GDP print, we wrote: “Savor the flavor because it will not last.” READ FULL ARTICLE>>