Inflation was a little bit warmer than thought in the first quarter, a
factor that deflates the third estimate of first-quarter GDP more than
expected which came in at a 2.0 percent annualized rate to just make the
low end of Econoday's consensus range. The GDP price index came in at
2.2 percent which is well above Econoday's consensus range which was
fixed at 1.9 percent. The GDP core, however, remains unchanged in the
second estimate at 2.6 percent.
Turning to components, the third
estimate erases what were small contributions from inventory growth and
net exports, each turning fractionally negative. Contributions from
consumer spending, now at a 0.9 percent rate, was also shaved slightly
while those from nonresidential fixed investment, at a very strong
showing of 10.4 percent, and residential investment at minus 1.1 percent
also revised higher. The contribution from government purchases was
also upgraded slightly, now at 1.3 percent.
The first quarter
was yet another strong one for business, with related investment perhaps
getting a boost from this year's corporate tax cut. But it was a soft
one for the consumer as spending sputtered and residential investment,
though revised higher in today's report, still in reverse. And inflation
also made a greater-than-expected appearance in the quarter which may,
given oil prices, tariff risks as well as tight conditions in the labor
market, become a theme in the coming quarters as well. But for growth,
the early outlook for the second quarter is extremely positive with
forecasts ranging from roughly 3 to 5 percent.
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