GDP beats on stronger business and consumer spending

pulse

May 26, 2017 1:24 PM

Consumer spending was a big drag on economic growth in the first quarter.

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The US economy grew by 1.2% in the first quarter, better than initially reported, according to the Commerce Department's second estimate of gross domestic product.

Economists had estimated that gross domestic product rose by 0.9%, improved from the advance estimate of 0.7% that was based on incomplete data. Revisions will be released again in June and next July.

The big upward revision in the second estimate was made to company spending on real estate, machinery, and other long-term expenditures — so-called nonresidential fixed investment.

Consumer spending, the biggest part of the economy, was also revised higher. Personal consumption rose by 0.6%, improved from the 0.3% pace in the first estimate. Core personal-consumption expenditures, a measure of how much consumers spend on goods and services as opposed to how much they're saving for the future, was revised up to 2.1% from 2%.

"I don't think it changes the story a whole lot — GDP was soft in the first quarter," said Scott Anderson, the chief economist at Bank of the West, who forecasts a rebound in the second quarter.

After the first estimate, economists were split on the extent to which the slowdown in growth was caused by weaker consumer spending or by residual seasonality — a statistical quirk that has distorted the real pace of first-quarter growth throughout this recovery.

For example, in minutes of the Federal Reserve's May meeting released Wednesday, staff members judged that the weakness reflected soft consumer spending and inventory investment, not residual seasonality. Fed participants who decide on monetary policy, however, thought seasonality at least played a role.

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