Q1 GDP Rises by 0.5%

The government said that first-quarter GDP rose by 0.5%. That’s annualized and adjusted for inflation. That’s the slowest growth rate in two years.

Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 1.9% rate in the first quarter. Outlays on goods advanced only 0.1%, the slowest pace in nearly five years. Spending on services climbed 2.7%.

Relatively low gasoline prices and steady job gains apparently weren’t enough to allay a sense of caution in the opening months of the year. Consumer spending has been on a downward trajectory for three consecutive quarters now.

Nonresidential fixed investment, a measure of business spending, fell 5.9%, the biggest drop since the waning days of the recession. Spending on structures and equipment both sank. The energy industry has been especially constrained amid low commodity prices and investment in mining shafts and wells was a major drag in the first quarter.

Trade and inventories also subtracted from growth at the start of the year.

The decline in net exports reflects a strong dollar and spotty demand from overseas. Inventory figures, meanwhile, can be volatile and that drag may well be easing this spring.

Spending on residential investment, such as new home construction and home remodeling, climbed 14.8% in the first quarter, the fastest pace since the end of 2012. The housing market in 2015 was by some measures the strongest since before the recession, though it has since shown signs of leveling off amid tight supplies and rising prices.

Overall government spending contributed to growth. Federal nondefense spending grew at a 1.5% pace and defense spending shrank 3.6%. Spending at the state and local level was up 2.9%.

Posted by Eddy Elfenbein on April 28th, 2016 at 9:13 am

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