First-Quarter GDP In "Respectable" Range

A sharp rise in service spending helped keep first-quarter GDP in the respectable range, at an annualized 2.3 percent rate and 3 tenths above Econoday's consensus. Service spending contributed nearly 1 full point to the result and offset a sharp decline in spending on durables. Consumer spending in total rose at a 1.1 percent pace, subdued but still positive.

Business spending also helped the quarter, contributing 8 tenths of a point with strength here including both structures and equipment. But residential investment, after spiking in the fourth quarter, couldn't pull its weight and contributed zero to the latest quarter.

Inventories, which had been too low relative to demand, are a welcome positive in the report, rising $33.1 billion and adding 4 tenths to the quarter. Imports are once again the biggest negative, subtracting 4 tenths in a quarter that marked the imposition of metal tariffs. But in more than an offset, exports rose 0.6 percent to make for a 6 tenths positive contribution from net exports. Government purchases are also a positive, adding 2 tenths.

Price readings are a negative surprise in the report, with the chain-weight GDP price index rising at only a 2.0 percent rate which is well short of expectations for 2.4 percent.

It was a moderate quarter for the economy especially for the consumer whose spirits waned a bit despite the big tax cut and continuing strength in the labor market. As for spending, given the moderate gains for services in February and January, the strength in this component in today's report implies a sharp gain for services in Monday's personal income & outlays report which will unbundle March's contributions to the quarter. Also note the decline in durable spending largely reflects the quarter's soft showing for vehicle sales which however did show promise going into April with the first indication on second-quarter consumer spending coming from next week's unit vehicle sales results.