Underwhelming GDP Growth for Q1  – Blame the Consumer

By at 27 April, 2018, 9:48 am

by Raymond J. Keating-

Looking at the latest GDP data released on April 27 by the U.S. Bureau of Economic Analysis, we see that the economy continues to struggle in terms of economic growth picking up some real steam. In fact, first quarter real GDP growth of a meager 2.3 percent was actually down from 3.1 percent in the second quarter 2017, 3.2 percent in the third quarter, and 2.9 percent in the fourth quarter.

Crawling inside the first quarter data a bit, we discover that the main culprit for slower growth was the consumer.

Investment Numbers Solid

The investment numbers actually were good. Overall, real gross private domestic investment grew by 7.3 percent. And within that, fixed investment grew by 4.6 percent and fixed nonresidential (or business) investment expanded by 6.1 percent. The only real problem in the investment numbers was residential investment plummeting from 12.8 percent growth in the fourth quarter to being flat in the first quarter of this year.

Trade Numbers Mixed

As for trade, it was mixed. Export growth was respectable at 4.8 percent, but import growth slowed from 14.1 percent growth in the fourth quarter to 2.6 percent in the first quarter 2017.

Consumers Tighten Spending

But the consumer reined in during the first quarter. Real personal consumption expenditures grew at a mere 1.1 percent, which was the slowest rate of growth since the second quarter of 2013. Spending on durable goods declined by 3.3 percent and nondurable goods expenditures managed growth of only 0.1 percent.

But while sluggish growth continued in the first quarter of 2017, there is reason for hope that growth will pick up steam. Specifically, it pays to remember that the consumer is a follower. That is, consumers take their cues from business and investment. When investment grows and businesses are expanding and hiring, then the consumer naturally becomes more optimistic. The solid investment numbers we’ve seen for the past three quarters should feed into faster consumption growth.

In the end, the biggest threat to economic growth looking ahead would be political risks and policies heading in a wrongheaded direction, as is the concern now on the trade front regarding protectionist impulses from the White House. But if policies are pointed in a positive direction – such as tax and regulatory relief continuing, and free trade being advanced – then expectations should be pointing to a real pick-up in economic growth.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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