GDP: Economy Definitely Slowing, Consumer Fighting Valiantly

By William Trent, CFA of Stock Market Beat

Gross domestic product, or GDP, which measures total goods and services output within U.S. borders, increased at a weaker-than-expected 1.3 percent annual rate in the three months from January through March.

That was a little more than half the fourth quarter’s 2.5 percent rate and well below the 1.8 percent rate that Wall Street analysts had forecast GDP would expand.

Looking at it graphically, the slowdown in growth is apparent. Up until now, the year/year changes had not been nearly so significant. Business spending is slowing down even more dramatically.

The Gross Domestic Product release from the Bureau of Economic Analysis (BEA) says:

The increase in real GDP in the first qu
arter primarily reflected positive contributions from personal consumption expenditures (PCE) and state and local government spending that were partly offset by negative contributions from residential fixed investment, private inventory investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

“Primarily” probably doesn’t do justice for the consumer’s contribution to GDP. It is much closer to “single-handedly.”

It is also easy to see why worrywarts worry about the wart of residential investment, given that residences are the largest asset for many of those consumers.

However, it is acting as less of a drag than it did in recent quarters.

It definitely looks as though something has to give. Either businesses will need to lend consumers a hand supporting the economy or the slowdown will get significantly worse.