First Quarter GDP Report – Strong headline number, but beneath the surface growth weakened

GDP Report 2019 First Quarter

Gross Domestic Product (GDP) grew by 3.2% in the first quarter, which was significantly higher than expectations of 2.3%. While the headline number is quite strong, the underlying details are in-line with our expectations for a slowdown in growth for the American economy this year. A buildup in inventories, a surge in net exports and growth in government spending accounted for over 2% of GDP growth during the quarter. All three of these factors are highly unlikely to be sustained moving forward and stripping them out, underlying growth was just 1.1% - the weakest growth in nearly six years. The weakness below the surface was driven by a sharp deceleration in spending by consumers and a slowdown in business investment. Consumer spending grew only 1.2%, which represents the second weakest spending growth since 2013. In sum, while many people are celebrating GDP growth ticking back over 3%, a deeper look reveals that the U.S. economy appears to have lost some momentum in early 2019.