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.
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