US GDP +3.2% in Q-1, Trump Policies Working

US GDP +3.2% in Q-1, Trump Policies Working

Reports of the demise of the US economy have proved unfounded as Q-1 activity showed strength. The US economy expanded at a 3.2% annual pace in the first three months of 2019, the government said Friday.

The gain was well above forecasts.

Economists polled had forecast a 2.3% increase in GDP. The economy grew at a 2.2% rate in Q-4 of Y 2018.

Inflation moderated a bit in Q-1.

An unexpected factor behind the acceleration in GDP growth in Q-1 was the sharp upturn in state and local government spending.

Spending at this level jumped 3.9% after a 1.3% drop in the prior Q. This was the fastest gainer in 3 years.

Also driving the stronger GDP growth were stronger inventory building and trade.

Final sales to domestic purchasers, which excludes trade and inventory behavior, rose 2.3% in Q-1, the smallest gainer in 3 years, but well above what economists were expecting.

The value of inventories increased to $128.4-B from $96.8-B, adding to GDP.

The trade sector added a little more than 1% to growth in the Q. Exports rose 3.7%, while imports dropped by the same amount, leading to a smaller trade deficit.

Offsetting these gains, consumer spending decelerated to a 1.2% gain, the slowest increase in a year.

Business fixed investment decelerated to a relatively slow 2.7% gain, down from a 5.4% gain in the prior Q. Investment in structures fell 0.8%, the 3rd straight decliner.

Investment in new housing was soft. Residential investment dropped 2.8%, the 5th straight Quarterly decliner.

Inflation, as measured by the PCE (personal consumption expenditure price index), fell to a 1.4% annual rate Q-1 from 1.9% in the prior three-month period. The decline in core PCE inflation was less pronounced, slipping to 1.7% from 1.9%. The monthly inflation numbers will be released next Monday.

The acceleration in growth in Q-1 is remarkable considering the doom and gloom that surrounded Q-1 outlook in December. Before the New Year began, the Atlanta Fed’s “nowcast” model projected 0.5% growth and the flattening of the yield curve begat talk of recession.

Instead, the economic data improved steadily as the Quarter progressed. Economists think the strong gain in retail sales in March augurs well for Q-2 growth.

The Fed is not expected to change its patient approach to interest-rate policy despite the strong report. Officials are expected to wait to see how the economy fares in Q-2 before making any decisions. The solid performance in Q-1 could stop some chatter that the next Fed move will be a rate cut.

The FOMC will meet next week to discuss the outlook. Reporters will get a chance to ask Fed Chairman Powell about the GDP data at his news conference Wednesday.

In Summary: US GDP growth is very impressive, and solid. The economy is still is moving ahead despite the persistent pessimism that has been exacerbated by the Fed’s abandonment of policy normalization, The Trump Policies are working.

Making and Keeping America Great!

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