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GDP growth slows in the first quarter, but underlying momentum is robust

GDP growth lost momentum in Q4, falling to 1.1% in seasonally adjusted annualized rate terms (SAAR) from 2.6% in the fourth quarter of last year. Q1’s reading was the worst since Q2 2022. However, the result was distorted by changes in private inventories—which subtracted 2.3 percentage points from headline GDP growth—and underlying momentum was robust.

Household spending growth sped up to 3.7% SAAR in the first quarter, which marked the best reading since Q2 2021 (Q4 2022: +1.0% SAAR). Falling inflation, warm weather and strong employment growth likely underpinned the figure. Public spending improved to a 4.7% expansion in Q1 (Q4 2022: +3.8% SAAR), on stronger defense and non-defense spending. Meanwhile, fixed investment declined at a slower rate of 0.4% in Q1, from the 3.8% decrease in the prior quarter, due to a softer fall in residential investment.

On the external front, exports of goods and services increased 4.8% on a SAAR basis in the first quarter, which contrasted the fourth quarter’s 3.7% contraction. In addition, imports of goods and services bounced back, growing 2.9% in Q1 (Q4 2022: -5.5% SAAR).

On an annual basis, economic growth accelerated to 1.6% in Q1, from the previous period’s 0.9% expansion.

The Consensus is for GDP to lose some steam in Q2 as the impact of tighter monetary policy filters through.