GDP: Weak Consumption in 1Q17

April 28, 2017
Bottom Line: Economic growth decelerated in this first estimate of 2017 1st Quarter GDP, confirming projections made by the Atlanta Fed that consumption grew at just 0.3% in the 1st quarter due to slower auto sales and slower growth in electricity consumption, a part of the "services less food" component of consumption. Stronger business and residential investment was partially offset by a decline in inventory investment, while a decline in government purchases outweighed modest growth in net exports. While this initial report suggests the 1st Quarter was the slowest in 3 years, the economy has been growing for the past 28 quarters at an average annualized growth rate of 2.3%. Given the components of consumption that led the decline, there is reason to expect some rebound in the 2nd Quarter. Gross Domestic Product ROSE by 0.7% in the 1st Quarter, lower than market expectations for an increase of 1.0%. During the seven years of economic expansion, the economy grew at an average annual rate of 2.3% after declining at a 2.9% rate during the recession. Economic activity is now 1.9% ABOVE its year ago level and 12.3% ABOVE its pre-recession 2007 Q4 cyclical peak. Inventory Investment FELL by $39.3 billion, subtracting 0.93 percentage points from overall economic activity. Consequently, Real Final Sales ROSE by 1.6% and is now 2.1% ABOVE its year ago level. Additionally, Imports ROSE by 4.1% and Exports ROSE by 5.8% so Net Exports ROSE by $2.2 billion. This implies that Real Final Domestic Demand ROSE by 1.5% and is now 2.2% ABOVE its year ago level. Consumer Spending ROSE by just 0.3%, contributing 0.23 percentage points to economic growth. Business Investment ROSE by 9.4%, adding 1.12 percentage points to GDP. Intellectual property products declined by 100.0% while non-residential structures increased by 22.1%. Residential Investment ROSE by 13.7%, adding 0.50 percentage points to economic growth. Finally, Government Purchases FELL by 1.7%, subtracting 0.30 percentage points to GDP. This was its 3rd negative contribution in the last 12 quarters. The GDP Price Index ROSE by 2.3%, compared with market expectations of 2.0%. This is also 2.0% ABOVE its year ago level.