The Atlanta Fed was right once again, and slashing its forecast over the past 3 months today the BEA confirmed that in the first quarter US economic growth tumbled to just 0.7%, down from 2.1% in the last quarter and below the 1.0% expected, and the lowest print in three years going back all the way to Q1 2014.
Broken down by components, the disappoing number reflected increases in business investment, exports, housing investment, offset by a big slowdown in consumer spending. The increase in business investment reflected increases in both structures and equipment, notably a significant increase in mining exploration, shafts, and wells.
These positive contributions were offset by decreases in private inventory investment, state and local government spending, and federal government spending.
The increase in exports reflected an increase in nondurable industrial supplies and materials, notably petroleum. Also on trade, imports, which are a subtraction in the calculation of GDP, increased in the first quarter of 2017. As the chart below shows, the dramatic drawdown in trade as a result of the soybean export surge giveback is now over, and net trade contributed a modest 0.1% to Q1 GDP.
But the biggest culprit for the atrocious GDP print was the collapse in consumer spending, which rose at just 0.23% annualized, the lowest increase since 2009, and reflected an increase in services offset by a decrease in motor vehicles and parts. In short: for whatever reason, spending in the first quarter imploded.
Elsewhere, looking at PCE, prices rose 2.6% Q/Q, above the 2.3% expected, and higher than last month’s 2.0%. Core PCE rose 2.0%, in line with expectations.
Once again, the bulk of the PCE growth came from rising healthcare service prices, with the rest barely registering.
Food prices increased in the first quarter following a decrease in the fourth quarter of 2016. Energy prices increased in the first quarter of 2017 following a larger increase in the fourth quarter of 2016. Excluding food and energy, prices increased 2.3 percent in the first quarter of 2017, compared with an increase of 1.6 percent in the fourth quarter of 2016.