First Quarter GDP Starts Off Soft

The Bureau of Economic Analysis said first quarter U.S. gross domestic product rose by just 0.5 percent in its first (advance) estimate issued yesterday.

In the fourth quarter, real GDP increased by 1.4 percent.

BEA said the increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures, residential fixed investment and state and local government spending, partly offset by negative contributions from nonresidential fixed investment, private inventory investment, exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The report said deceleration in real GDP reflected a larger decrease in nonresidential fixed investment, a deceleration in PCE, a downturn in federal government spending, an upturn in imports and larger decreases in private inventory investment and in exports that were partly offset by an upturn in state and local government spending and an acceleration in residential fixed investment.

John Silvia, chief economist with Wells Fargo Securities, Charlotte, N.C., said yesterday’s report continued a “downward slide” in economic conditions dating back to the second half of 2015. “The past three first quarters have registered soft rates of growth, suggesting that the BEA is still having seasonal adjustment issues,” he said.

Silvia noted following this soft Q1 performance, “understandable concern” exists over the likelihood that GDP growth will pick up in the remainder of the year. “As in past periods, where Q1 activity was soft, we also expect to see a rebound unfold in Q2,” he said. “For starters, employment gains remained solid as we moved through Q1, resulting in a firming rate of real income growth. Both suggest the backdrop for consumer spending remains favorable to the outlook for continued overall economic expansion.”

Silvia said forecasts call for GDP growth of 2.5 percent for the rest of the year.

BEA noted first-quarter advance estimate is based on source data that are incomplete or subject to further revision by the source agency. The “second” estimate for the first quarter, based on more complete data, will be released May 27.