U.S. First Quarter GDP of 3.2% Surprises Economists

The U.S. economy continues to charge ahead, thanks to tax cuts and deregulation, U.S. exports and state spending. The gross domestic product (GDP) number for the first quarter of 2019 surprised the very best analysts’ prognostications.

A consensus of analysts polled pointed towards a growth rate of 2.3 percent, which in itself would have been an improvement over the fourth quarter of 2018. That actual number surprised pundits and provided some additional optimism for the markets.

The strength of the labor market is increasing real wages as the market tightens. In the first quarter, 180,000 jobs were added. The increased household income is stimulating spending by consumers. This bodes well for the economy as more discretionary income means more spending on luxury items, travel and investing.

The rebound in the stock market, after the way it ended 2018, has helped the economy and bolstered optimism that the fundamentals still look strong to many experts. Also, strong exports, resulting from trade negotiations, have spurred the economy ahead. Consumer spending picked up in pace in March.

The GDP number could have looked even stronger if not for some slowing in the residential real estate sector and the marginal impact of the government shut-down in January. There was also a reduction in consumer spending on light trucks, that slightly impacted the total GDP number.

It was government spending on infrastructure, at the state and local levels, that helped contribute to the positive growth number as well. That spending was up 3.9 percent during the quarter. This is all good news considering that there was apprehension about the pace of domestic growth only a few months back.

According to Bloomberg; “Friday’s report showed net exports added 1.03 percentage point to growth while rising private inventories added 0.65 point. The combined boost of 1.68 point was the biggest in six years.”

These figures are even more impressive in light of the slowing global economy and some back-and-forth trade tensions.

The first quarter performance followed a gain of 2.2 percent in the last quarter of 2018. It has also been helped along by the Federal Reserve’s decision to back off on interest rate increases this year. This was welcome news to Wall Street

Economists Glummer on Second Quarter

Of course, the pessimists are not far off in the shadows and several economists are skeptical that secondquarter GDP will be a repeat of the first quarter. Many are predicting growth in the 2 percent range. Their reasoning is that the gains added through corporate orders to build inventories, along with gains from a falling trade deficit, will not only disappear in Q2, but may reverse.

Most of the GDP number is made up of consumer spending and some economists believe that spending on items like household appliances, automobiles, furniture and consumer electronics will slow in the second quarter, after seeing some slow-down in Q1. Ironically, some of the economists who believe we will see slower growth the remainder of the year, believe that increased consumer spending that resulted from the tax cuts, will not be repeated.

Economists can be wrong though, which is why the 3.2 percent first-quarter GDP number surprised most of them.

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