First Quarter GDP Growth Beats Estimates

Popular Economics Weekly

Surprise, surprise, first quarter GDP growth beat the estimates of economists and pundits, but it wasn’t for the usual reasons. Spending at the state and local level jumped 3.9 percent after a 1.3 percent drop in the prior three months. This was the fastest gain in three years, said the Commerce Department.

Spending by local governments probably picked up due to the partial federal government shutdown because of a “turnaround in investment, most notably in construction of highways and streets,” said the BEA.  Local and state governments may have been waiting to see if the Trump administration would chip in to boost needed infrastructure upgrades, and since that didn’t happen states decided to implement the needed projects.

The gain was well above forecasts. Economists polled by Market Watch had forecast a 2.3 percent increase in gross domestic product, and other pundits had it at less than 2 percent, in part because GDP grew 2.2 percent rate in the final three months of 2018.

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Econoday.com

Consumer spending rose just 1.2 percent, in spite of the last minute surge in March retail sales, up 1.6 percent, which basically cancelled out the prior 3 months declines in retail spending. And business fixed investment decelerated to a relatively slow 2.7 percent gain, down from a 5.4 percent gain in the prior quarter.

Investment in structures fell 0.8 percent, the third straight decline, and investment in new housing was another weak spot, dropping 2.8 percent, the fifth straight quarterly decline, according to the BEA.

Housing construction is picking up, but nowhere near pre-recession levels. For how severe the current spell of under-building has been, take a look at new-home sales in 2000 or 2001, as Market Watch’s Andrea Riquier said last week. During those two years, well before the housing bubble started to inflate, Americans purchased 877,000 and 900,000 newly-constructed homes. In 2018, Americans purchased just 622,000

Inflation, as measured by the personal consumption expenditure price index, fell to a 1.4 percent annual rate in the first quarter from 1.9 percent in the prior three-month period. The decline in core PCE inflation less gas and oil sales was less pronounced, slipping to 1.7 percent from 1.9 percent. The monthly inflation numbers will be released on Monday, but such low inflation also shows lessening demand for goods and services.

And lower inflation means lower interest rates that banks can charge, which means shrinking bank profit margins and less available credit.

So future growth has to once again depend on consumers, and they seem to have mixed feelings about their future. The U. of Michigan sentiment index is still holding above 90, and retail sales were strong in March, as I said.

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Econoday

The index itself is down 1.2 points from March, though the 97.2 result is still well up from the low 90 readings during January and February. Nevertheless, April’s month-end slowing in current conditions is not a favorable signal for either the month’s retail sales nor perhaps for next week’s employment report due on Friday, says Econoday. Inflation expectations are mixed with the year-ahead reading unchanged at 2.5 percent but the 5-year outlook down 2 tenths to 2.3 percent. 

The big question remains will consumers continue to maintain their share of consumption, and so economic growth? The bottom line seems to be that consumers’ incomes are growing slowly, in spite of full employment. There’s too much opposition from corporations and Big Business in general, especially in the right-to-work red states that have opposed a higher minimum wage. There are 21, mostly red states that have the $7.25 per hour federal minimum reached in 2007, when it has risen to as much as $12 in California, Massachusetts and Washington; with Colorado, Arizona, New York and Oregon close behind at $11 per hour.

In fact, Georgia and Wyoming are still at $5.15 per hour for those workers not subject to the federal Fair Labor Standards Act first enacted in 1938, which guarantees a minimum wage for employees who work at least 40 hours per week (other than independent contractors).

Yet how can consumers—that power two-thirds of all economic activity—keep the economy growing, when even the $15 per hour minimum wage goal set my presidential candidates Bernie Sanders and Elizabeth Warren isn’t a living wage?

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Economy, Keynesian economics, Weekly Financial News and tagged , , , , . Bookmark the permalink.

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