Q1 GDP Growth: Why it’s Still Exceptionally StrongApril 30, 2018
While markets lose their minds again, we have to remember that there’s still plenty to be excited about.
Especially when it comes to the U.S. economy.
U.S. GDP may have slowed a bit, but it was far better than expectations.
“The economy is in fine shape,” says Gus Faucher, chief economist of PNC Financial Services Group, as quoted by USA Today. “We will see stronger growth the rest of 2018.”
In fact, should all go according to plan, growth won’t be much of a problem for the year.
For one, President Trump has promised to deliver at least 3% growth this year thanks in to the $1.5 trillion tax cuts Congress passed late last year, along with a $300 billion increase in federal spending, say analysts.
And two, with corporate America brimming with confidence, ramping up their outlays in the first quarter, we could see substantial growth ahead. Over the last quarter, business spending on things such as computers and factory machines grew 6.1% after increasing 6.8% in the previous quarter, as companies remain confident about the economy.
Granted, growth slowed from 2.9% in the fourth quarter to just 2.3% in the first three months of 2018 on the heels of declining exports and consumer spending.
But a print of 2.3% was still better than estimates for 2% growth.
And it was also a significant improvement year over year. In the first quarter of 2017, U.S. GDP was a mere 0.7%, as reported in late April 2017.
While consumer spending did slow from 1.1% from 4% late last year, much of that can be attributed to residents in Texas and Florida who had to replace cars damaged by hurricanes, for example. We also saw delayed tax refunds and a harsher winter curtail spending as well. But with stronger jobs and income growth coupled with bigger paychecks thanks to tax cuts, and consumers will be fine. Plus, according to CNBC, the slowdown isn’t much of a shock.
“The first-quarter growth pace is, however, probably not a true reflection of the economy, despite the weakness in consumer spending. First-quarter GDP tends to be sluggish because of a seasonal quirk. The labor market is near full employment and both business and consumer confidence are strong. Economists expect growth will accelerate in the second quarter as households start to feel the impact of the Trump administration’s $1.5 trillion income tax package on their paychecks. The tax cuts came into effect in January.”
Overall, we got a solid report for the first quarter of the year, certainty better than expected.
The economy is still chugging along at a very solid pace.
And as long as that continues, as it should, we’ll see higher highs in the markets, too.