–Commerce Dept Assumed Rising Inventory, Trade in Missing Data

By Joseph Plocek

WASHINGTON (MNI) – The U.S. Q1 real GDP was pretty much as expected
at +3.2%, but final sales remained modest at +1.6% as inventories
contributed significantly, suggesting continued modest growth ahead.

Consumption appears to be rising (at +3.6%, at its best pace since
Q1:07) on better non-auto durables spending. Spending was seen at a
good clip in furnishings, recreational goods, and ‘other’ durables.
Spending on motor vehicles and parts made a small negative contribution
to growth.

Residential fixed investment spending fell 10.9% after having edged
out two quarters of gains. Confusion about expiring tax credits could
have hurt the total. Nonresidential investment increased 4.1%.

Federal government spending was up 1.4%, but state and local
government spending was off 3.8% in its worst performance since the deep
recession of 1981. S&L spending has been down three periods in a row,
and was down in five of the last six quarters as localities adjust
budgets to the lower real estate tax revenues implied by falling home
prices.

GDP prices printed +0.9% and core PCE prices +0.6%, both modest. A
federal pay raise for civilian and military personnel, treated as an
increase in the price of employee services purchased, added about 0.2
point to some price indices. The last time core PCE prices were lower
was Q1:1959 at flat.

The Commerce Dept. said the accounts do not identify directly the
effects of the American Recovery and Reinvestment Act’s outlays and tax
reductions. However, ARRA lowered taxes and funded about $96 billion in
grants and $16 billion in capital transfers to S&L governments, and gave
subsidies to consumers in Q1.

All the data are consistent with recovery at a modest pace, albeit
one still supported by government stimulus. Q2 growth also appears to be
running at a modest pace so far, with a better read coming next week
with the release of April’s sales totals for autos and retailers.

The Commerce Dept. assumed rising inventories and a 5% bigger trade
gap for missing March data. These could be the biggest source of
revisions ahead.

GDP Compnts: Q1 Q2 Q3 Q4 Q1 Prelm
Real GDP -6.4% -0.7% +2.2% +5.6% +3.2%
Final Sales -4.1% +0.7% +1.5% +1.7% +1.6%
PCE +0.6% -0.9% +2.8% +1.6% +3.6%
Res Fix Invest -38.2% -23.3% +18.9% +3.8% -10.9%
Nonres FixInvest -39.2% -9.6% -5.9% +5.3% +4.1%
Net Exports add 2.64 add 1.65 cut 0.81 add 0.27 cut 0.61
Chg Pvt Invty cut 2.36 cut 1.42 add 0.69 add 3.79 add 1.57

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