Final Q1 GDP Rises 1.1% Despite Worst Personal Consumption In Two Years

And so the final, and largely irrelevant, estimate of Q1 GDP is in the history books. Moments ago the BEA reported that in the first quarter GDP rose a tepid 1.1%, higher than the first and second estimates of 0.5% and 0.8%, respecitvely, and also higher than consensus estimates of 1.0%.

So far so good. The only problem is that the all important personal consumption expenditures component of GDP rose a modest 2.0% annualized, missing expectations of a 2.1% print, a 1.5% sequential increase, and a contribution of just 1.02% to the bottom line GDP. This was the worst showing by the US consumer since Q1 of 2014 and confirms that the spending power of the US consumer which accounts for 70% of GDP, is getting increasingly worse.


So where were did the positive changes come from? Virtually all other components:

  • Fixed Investment was found to have subtracted only -0.06% from Q1 GDP, better than the -0.25% in the previous estimate
  • Private Inventories were largely unchanged at -0.23%
  • Exports were surprisingly revised higher from a negative 0.25% to contribution of 0.04%, which meant that net trade instead of subtracting 0.2% from the bottom line GDP print actually added 0.1%. It is curious how the US had a favorable trade balance at a time when global trade is contracting at the fastest pace since the financial crisis.
  • Government consumption was also largely unchanged at 0.23%.

The full breakdown is below.

More details from the report:

The deceleration in real GDP in the first quarter primarily reflected a deceleration in PCE, a larger decrease in nonresidential fixed investment, and a downturn in federal government spending that were partly offset by upturns in state and local government spending and exports and an acceleration in residential fixed investment.


Real gross domestic income (GDI), which measures the value of the production of goods and services in the United States as the costs incurred and the incomes earned in production, increased 2.9 percent in the first quarter, compared with an increase of 1.9 percent in the fourth. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.0 percent in the first quarter, compared with an increase of 1.7 percent in the fourth.


Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 0.9 percent in the first quarter, compared with an increase of 1.5 percent in the fourth.


The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 0.2 percent in the first quarter, compared with an increase of 0.4 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 1.4 percent, compared with an increase of 1.0 percent.

Will this change the market's take on what the Fed will do over the next few months, where odds of a rate hike are now 0% compared to rate cut odds of over 10%? Not at all.