Here is the full report from the BEA. Real GDP increased at an annual rate of 1.3%. Most of us were expecting less than 2%, but few expected something this low.
The short version is that housing is the main negative component and consumer spending is the main positive component. In fact, consumer spending continues to defy the expectations of many, contributing 2.66% to the overall growth rate. Nonresidential investment contributes a small 0.21%. Residential investment subtracts almost a full percentage point (0.97%). As King (SCSU Scholars) points out, this is less than its impact in the 4th quarter--and I would add, the 3rd quarter. Inventories and net exports also shave a bit off the overall total.
To be sure, this number was a little lower than I expected, but not much. I was not looking for anything near the 2% that was the top of the range given by some analysts. While I don't think it's time to call recession yet, it does make me wonder how long consumption can hold up in the face of the declines in residential investment.
I concur with some of the voices in the blogosphere today. King Banaian also writes:
Worth noting: When this number is revised (and there will be two such revisions) the trade figure is the one that changes the most. So I expect this GDP estimate to be rather volatile to trade revisions.
Bill Conerly says, "No panic." Barry Ritholtz points out that the PCE deflator is up 3.4% (from a 1.0% drop in the 4th quarter). This is enough to get my attention and cause me to doubt that inflation is coming under control as quickly as we thought. No doubt the Fed will be concerned about this. Ritholtz says that this is why you aren't hearing any "rate cut" chants. Kash is more pessimistic, saying that this is a yucky report. I wouldn't go that far. But it is definitely concerning. I can't just shake this one off and forget about it.
UPDATE: PGL isn't pleased with the long term prospects either.
UPDATE 2: James Hamilton has two posts that hit the mark. He sees the strength of consumer spending as evidence of consumption smoothing behavior in the face of a temporary drop in the other components of GDP. That's the story I'm going with for now.
I noticed that there is now a disconnect between nominal and real GDP. Over the past three quarters we have:
Real..... 1.96%, 2.45%, 1.26%
Nominal.. 3.85%, 4.13%, 5.29%
How should the data be interpeted? Is nearly all nominal growth coming from inflation?
By definition, the percentage change in the GDP deflator is the difference between the percentage changes in nominal and real GDP. In the most recent quarter, that means the GDP deflator increased by 4%. In the previous two quarters it was less than 2%. The 4% increase in 2007:I was the largest in quite some time. The two quarters prior to that experienced lower than average price growth relative to recent years.
The GDP deflator is one measure of inflation. The PCE deflator is preferred by many people now. The rate of inflation by the PCE deflator was 3.4% in the first quarter of 2007. This is out of the comfort zone for many, though it should be stressed that the Fed does not have an official inflation target.