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GDP:  Sharply Stronger Than Expected

April 26, 2019

Bottom Line: Economic activity was sharply stronger than expected in the advance reading of 1st Quarter GDP. Net exports added over 100bps of the 3.2% annualized gains on the quarter. Additionally, government purchases and inventory investment rebounded. Consumption growth was modest. though, at 1.2%, adding just over 80bps to the quarter's totals. This key component of GDP has decelerated sharply since the sharp growth seen in 2Q and 3Q18 on the heels of tax stimulus. Overall the trend remains modest to moderate with the economy growing at an average of 3% for the last 37 quarters.

Gross Domestic Product ROSE by 3.2% in the 1st Quarter, higher than market expectations for an increase of 2.3%.

During the 9.3 years of economic expansion, the economy grew at an average annual rate of 3.0% after declining at a 2.9% rate during the recession. Economic activity is now 3.2% ABOVE its year ago level and 26.1% ABOVE its pre-recession 2007 Q4 cyclical peak.

Inventory Investment ROSE by $31.6 billion, adding 0.65 percentage points to overall economic activity. Consequently, Real Final Sales ROSE by 2.5% and is now 2.7% ABOVE its year ago level.

Imports FELL by 3.7% and Exports ROSE by 3.7% so Net Exports ROSE by $56.4 billion. This implies that Real Final Domestic Demand ROSE by 1.4% and is now 2.6% ABOVE its year ago level.

Consumer Spending ROSE by 1.2%, contributing 0.82 percentage points to economic growth.

Business Investment ROSE by 2.7%, adding 0.38 percentage points to GDP. Intellectual property products increased by 8.6% while non-residential structures declined by 0.8%.

Residential Investment FELL by 2.8%, subtracting 0.11 percentage points to economic growth.

Finally, Government Purchases ROSE by 2.4%, adding 0.41 percentage points to GDP. This was its 8th positive contribution in the last 12 quarters.

The GDP Price Index ROSE by 0.9%, compared with market expectations of 1.2%. This is also 1.9% ABOVE its year ago level.

Article by Contingent Macro Advisors