The final estimate of first quarter GDP suggests the economy contracted by 0.2%, compared to the previously estimated decline of 0.7%. The modest improvement was not surprising, as the report was in line with expectations.
While consumer spending grew in the first quarter, spending on goods ground to a near standstill. The impact was evident across the board and not limited to higher ticket items, suggesting that consumers were simply more restrained in their spending habits.
The impact of the stronger dollar and tepid growth outside the U.S. also played a meaningful role. A decline in exports trimmed growth by 0.8% after three consecutive quarters of growth. Imports were also a drag on growth.
Factors contributing to the contraction, including harsh winter weather hampering consumer spending and exports, the West Coast port strikes, and the decline in oil prices leading to reduced infrastructure spending, all appear to be transitory in nature.
In addition, questions have been raised about the validity of the seasonal adjustments being applied to first quarter GDP. For the second consecutive year, Q1 growth has been reported as negative, even as most job market indicators remained solidly positive. The Bureau of Economic Analysis has acknowledged these issues and will release revised figures next month. Those adjustments are expected to push first quarter figures higher.
Overall, today’s GDP print is unlikely to have any market impact, particularly with the current focus on Greece and the Eurozone. Further, investors are already looking ahead to growth forecasts for the second quarter, which should bring much stronger growth – projected by economists to potentially near 3%.
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