- The pace of economic growth flew past expectations in the first quarter.
- But the broad reading may have masked pockets of weakness in the economy.
- Perhaps most concerning for economists, a less volatile measure of private-sector activity came in surprisingly weak in the first quarter.
Gross domestic product, a measure of all the goods and services produced in the country, grew at a far faster pace than expected in the first quarter. But the broad reading may have masked pockets of weakness in the economy.
“It is fair to say that today’s headline print exaggerates the strength of the economy,” Eric Winograd, a senior United States economist at the investment firm AllianceBernstein, said on Friday.
The factors that lifted GDP 3.2% from a year earlier aren’t expected to last. Economists said a sharp jump in exports, for example, was largely due to companies rushing orders ahead of scheduled escalations in the ongoing trade war between Washington and Beijing.
“Put an asterisk next to it as the first quarter expansion was driven by unsustainable inventory accumulation, a temporary narrowing of the trade deficit and a one-time increase in government sponsored construction,” said Joe Brusuelas, the chief economist at RSM, a financial-consulting company.
Underlying data in Friday’s report pointed to softening consumption and investment, meanwhile, supporting widespread expectations for growth to slow in the coming months. Key measures of inflation actually moved lower, with the personal consumption expenditures price index coming in well below the Federal Reserve’s target of 2%.
Perhaps most concerning for economists, a less volatile measure of private-sector activity came in surprisingly weak in the first quarter.
Real final sales to private domestic purchasers, which exclude purchases by the government, fell to six-year low at 1.3% between January and March. That was compared with 2.6% at the end of 2018 and marked a third straight quarter of decline.
“Statistically this is a better predictor of future GDP prints,” Jason Furman, who chaired the Council of Economic Advisers in the Obama White House, said on Twitter. He added that the measure left out the very data that boosted Friday’s headline estimate.
Still, from a global trade war to a slowdown abroad, the US economy appeared to show resilience against a host of strains in the first quarter. The report helped to assuage concerns that the long-running economic expansion has run out of steam and suggested forecasts for an imminent recession have been overblown.
Hours after Friday’s report, White House economic adviser Larry Kudlow called on the Federal Reserve once again to slash interest rates. The Federal Open Market Committee is not expected to adjust interest rates at all this year, but officials have penciled in at least one hike in 2020.
“One thing is for sure: there’s no way the FOMC is going to cut rates on the heels of this report,” said Ken Kuttner, a former Fed staffer who is now an economist at Williams College. “You would have to see a significant adverse shock, or several months’ worth of bad numbers, before cuts would be on the table.”
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