United States: Advance Q1 GDP estimate beats market expectations on strong business investment and exports
An advance GDP estimate shows the U.S. economy performed more resiliently than expected in the first quarter, helped by healthy non-residential capital outlays, a build-up in inventories and solid export growth. GDP rose 2.3% in seasonally-adjusted annualized (SAAR) terms in the first quarter, lower than the 2.9% annualized increase recorded in the previous quarter but above market expectations of a more severe slowdown to 2.0%. On a year-on-year basis, GDP growth rose from 2.6% in Q4 to 2.9% in Q1, the highest figure in nearly three years.
The moderate setback in headline growth largely reflected weakness among households, who took a breather in the first quarter amid unfavorable weather conditions. They had front-loaded expenses in the fourth quarter due to hurricane-induced restocking efforts. Consequently, and despite a tight labor market and soaring consumer sentiment, household spending growth moderated to a 1.1% annualized expansion in the first quarter from the 4.0% rise recorded in the fourth quarter. Purchases of durable goods contracted 3.3% in Q1, a stark contrast to the post-hurricane 13.7% surge recorded in Q4. Service spending, however, fared much better and prevented household spending growth from running aground, logging a 2.1% rise in Q1 (Q4: +2.3% SAAR).
In a similar vein, waning hurricane-related rebuilding efforts saw residential investment growth—another consumer-related component—stagnating in the first quarter after blazing through the fourth quarter with 12.8% growth. Non-residential investment, on the other hand, recorded a solid 6.1% expansion in the first quarter, decelerating only mildly from the 6.8% increase logged in the fourth quarter on the back of double-digit growth in structures investment, and despite a moderation in equipment spending. Firms also engaged in restocking operations through the first quarter, with inventories contributing 0.4 percentage points to growth. Meanwhile, government spending growth decelerated to 1.2% in Q1 from 3.0% in Q4.
Meanwhile, solid global demand and a weak U.S. dollar allowed the external sector to contribute to growth in the first quarter. Exports rose a resilient 4.8% in annualized terms in the first quarter, down from the 7.0% increase recorded in the fourth quarter. Imports rose a more modest 2.6% in Q1, which marked a severe deceleration from the 14.1% increase logged in Q4. Because export growth outpaced that of imports, the external sector contributed 0.2 percentage points to overall growth in Q1, contrasting Q4’s 1.2 percentage-point subtraction.
All told, the first-quarter GDP estimate shows the U.S. economy carried more momentum into the first quarter than analysts had expected, which should add some upward pressure on full-year forecasts. Healthy growth dynamics will be compounded by ample fiscal stimulus this year, while accelerating wage growth should translate into higher discretionary spending. Against this backdrop, FocusEconomics expect stronger growth in the second quarter, no less due to the ongoing rebound in asset prices following volatility in the first quarter.