April 28, 2017
The first estimate of first quarter GDP growth came in at 0.7% which was weaker than the 1.5% growth rate that had been expected. That compares to a 2.1% pace in the fourth quarter. This is the first look at first quarter growth. This estimate will be revised twice more at the end of both May and June.
Final sales, which is GDP excluding the change in business inventories grew at a 1.6% pace in the first quarter compared to a 1.1% rate in the fourth quarter . Over the past year final sales have risen 2.1%. In the first quarter inventories as rose $10.3 billion compared to an increase of $49.6 billion in the fourth quarter. Thus, inventories subtracted 1.0% from GDP growth in the first quarter.
Final sales to domestic purchasers excludes both the change in inventories and trade rose 1.5% in the first quarter versus an increase of 2.8% in the fourth quarter. Over the past year this series has risen at a 2.2% pace. The deficit for net exports narrowed by $2.3 billion which means that the trade component added 0.1% to GDP growth in the first quarter as exports rose 5.8% while imports climbed by 4.1%.
Consumption spending climbed by just 0.3% in the first quarter versus an increase of 3.5% in the fourth quarter. Consumers took a breather in the first quarter but it is not expected to last. We expect consumer spending to increase 2.2% pace in 2017. Solid employment gains should boost income. The rising stock market will boost net worth. Expected individual income tax cuts should further stimulate spending. Everything related to the consumer seems quite solid despite the first quarter weakness.
Nonresidential investment jumped 9.4% in the first quarter after having climbed by 0.9% in the fourth quarter. We expect nonresidential invest to increase 4.5% in both 2017 and 2018 as business regains confidence in the wake of expected corporate tax cuts, relief from the currently onerous regulatory burden, and some repatriation of earnings from overseas.
Residential investment jumped 13.7% in the first quarter after having climbed 9.6% in the fourth quarter. While demand remains strong, builders are having an increasingly difficult time finding qualified workers which curtails growth in this category. We expect residential investment to increase 6.4% in 2017.
The foreign sector as measured by the deficit for real net exports narrowed by $2.3 billion in the first quarter after having widened by $82.8 billion in the fourth quarter. Exports rose 5.8% while imports rose by 4.1%. We expect the deficit for net exports to widen slightly this year and subtract 0.3% from GDP growth in 2017.
Federal government spending declined by 1.9% in the first quarter after having fallen 1.2% in the fourth quarter. Government spending is expected to rise 0.7% in 2017 as President Trump increases defense spending while non-defense spending rises slightly.
We expect growth of 2.1% this year, and 2.7% in 2018 given expected individual and corporate tax cuts and some repatriation of earnings from overseas.