GDP growth was a dismal 0.1% in the first quarter according to the preliminary announcement by the Bureau of Economic Analysis. Growth in the fourth quarter was revised up to 2.6%. First quarter growth was below expectations, partly due to severe weather, but a number of fundamental weaknesses in the economy were also in play. The only positive component in GDP was consumption spending. Spending growth exceeded growth in personal income resulting in a decline of the saving rate to 4.1% in March with a continued decline to 3.8% in April. Consumers used nonrevolving credit heavily to support spending. High levels of consumer demand is encouraging but growth in personal income, growth in housing and equity values, and low interest rates will all be needed to generate sufficient spending for higher growth.
U.S. first quarter real GDP shrank at a 2.9% annualized rate (a.r.), down from -1% prior estimate (which itself was revised from 0.1% initial estimate), and well below the consensus contraction of -1.8%. This is the biggest quarterly contraction in five years and the largest downward revision of a second GDP estimate. The revision was primarily due to weaker than expected consumer spending, a wider trade deficit, and a large inventory drawdown. Consumer spending rose at 1.0% a.r. in the first quarter, the weakest in five years. Personal spending and retail sales were tepid in April and May causing economists to downgrade estimates for second quarter growth, which is now in the 2.2% to 3.5% range.