First-quarter economic growth checked in at a 0.8 percent annual rate, adjusted for inflation, the Bureau of Economic Analysis reported Friday in a second estimate of Gross Domestic Product.
The 0.3 percentage point upward revision was roughly what private-sector economists expected, but not enough to rescue the first quarter from being a disappointment. The weak first quarter marked a slowdown from the end of 2015, which in turn only saw a tepid 1.4 percent growth rate.
Much of the upward revision represented businesses added more to their inventories than initially thought. Inventory spending, however, usually is not indicative of future growth. Business investment and exports were also revised up, though, in a more clearly positive development.
Growth slowed in the first quarter largely because businesses invested less in buildings and machines and consumer spending tapered off. Government spending also slowed.
Yet officials in the Obama administration and the Federal Reserve expect that the disappointing first quarter will not translate into weak growth throughout the year or, even worse, a recession. Part of that is because some of the slowdown can be traced to global currents that are restraining exports, a factor that officials see as only temporary.
The latest data suggests that GDP growth in the second quarter is on pace to clock in at nearly a 3 percent rate, according to a model maintained by the Federal Reserve Bank of Atlanta.
Fed officials then see growth picking up the rest of the year to finish above 2 percent.
Speaking yesterday in Washington, Federal Reserve Governor Jerome Powell suggested that a “significant strengthening” in second-quarter growth would be enough to reassure the central bank that the “apparent softness of the past two quarters” wasn’t permanent, paving the way for the Fed to raise interest rates this year.
One source of confidence for policymakers is that job growth remained resilient even as output growth faltered over the course of the winter and early spring. In the past three month, the U.S. has averaged 200,000 new payroll jobs each month, more than enough to keep unemployment trending down.
There were also hints within the GDP report that the underlying growth was stronger than the 0.8 percent rate suggested. Gross Domestic Income, a measure of output based on income received by different sectors rather than on spending, was notably higher than Gross Domestic Product. Averaging out the two measures, which in theory should be the same but differ because of measurement problems, growth was 1.5 percent — still weak, but faster.
The third, and final, estimate of GDP for the first quarter will be released on June 28.
