It may be revised downward in the two revisions that will be made to last week’s first quarter U.S. GDP growth report but even if not, this was still a low-quality GDP report. Several one-time factors – lower imports, inventory buildup and higher Pentagon spending were key contributors to the surprising (well above consensus estimate) of first quarter GDP growth. Based on the one-offs, current quarter output is poised to slow. Arguably the single most important sub-component of GDP was soft in the 1st quarter and more consistent with 1 to 1.5% GDP growth. As the accompanying chart shows, final sales to private domestic purchasers rose only 1.3% on an annualized basis, the lowest in nearly a decade. Investment by businesses in equipment managed a meager 0.2% growth in QI. For my friends in the construction industry, fixed investment in private non-residential and residential structures each declined on an annualized basis. Despite the political cheering, I still hold to a sub 2% GDP growth in 2019.
