USMC - Consumer And Government Spending High In Q1 Private Investments Plunge And Inventory Change Dogged GDP

2023-04-28 03:30:00 ET

Summary

• Americans came out of their funk they’d been in late last year. They’re 70% of GDP. And they blew money left and right; spending on durable goods spiked.
• GDP, adjusted for inflation, rose by 1.1% in Q1 from Q4, following the 2.6% increase in Q4 and the 3.2% increase in Q3, according to the Bureau of Economic Analysis on April 27.
• Consumer spending, which accounts for about 70% of GDP, surged by 3.7%, the biggest increase since 2021.

Americans came out of their funk they’d been in late last year. They’re 70% of GDP. And they blew money left and right; spending on durable goods spiked!

GDP, adjusted for inflation , rose by 1.1% in Q1 from Q4, following the 2.6% increase in Q4 and the 3.2% increase in Q3, according to the Bureau of Economic Analysis on April 27. The major factors, all adjusted for inflation:

• Consumer spending, which accounts for about 70% of GDP, surged by 3.7%, the biggest increase since 2021.
• Government spending at all levels surged by 4.7%.
• The trade deficit got a little less horrible.

But GDP was dragged down bigly by change in investment in private inventories, which subtracted 2.3 percentage points from GDP; and gross private domestic investment, which plunged.

Consumer spending on goods and services, adjusted for inflation, surged by an annual rate of 3.7% in Q1 from Q4, the biggest increase since Q2 2021 during the stimulus money binge.

Late last year, Americans had slowed their spending binge a little, but this quarter they came out of their funk, as we have seen in strong retail sales (goods) and in consumer spending in January and February (goods and services).

And as we’ve seen in retail spending, Americans spent like drunken sailors on goods, which surged 6.5% annual rate from the prior quarter, adjusted for inflation, with durable goods (such as new and used vehicles and other stuff) soaring by 16.9%!

Spending on services grew at a respectable but not breathtaking rate of 2.3%.

Government consumption and investment jumped by 4.7% (adjusted for inflation and annualized) to a new record, and the third quarter in a row of increases, after five quarters in a row of declines.

• Federal government: +7.8%, with national defense +5.9% and Nondefense: +10.3%.
• State and local governments: +2.9%.

Government consumption and investment does not include transfer payments and other direct payments to consumers (stimulus payments, unemployment payments, Social Security payments, etc.), which are counted in GDP when consumers and businesses spend or invest these payments from the government.

Gross private domestic investment plunged by 12.5% (adjusted for inflation, annualized), having now dropped in three of the past four quarters, having now worked of the pandemic spike.

• Nonresidential fixed investments: +0.7%:
  • Structures: +11.2%.
  • Equipment: -7.3%.
  • Intellectual property products (software, movies, etc.): +3.8%.
• Residential fixed investment: -4.2% after the 25.1% plunge in Q4.

The Trade Deficit (“net exports”) in goods & services improved – I mean, got a little less horrible:

• Exports rose 4.8%, which adds to GDP
• Imports rose also, but less than exports, +2.9%, which subtracts from GDP.

The catastrophic trade deficit during the pandemic was caused by consumers going on a historic stimulus-driven buying binge of goods, a lot of which were imported, or their components were imported. Some of this has now unwound, but the trade deficit (“net exports”) remains at horrible levels:

Change in private inventories subtracted 2.3 percentage points from GDP. Inventories remained flat in Q1 compared with Q4, but in Q4 inventories had surged, and the change of pace, from the surge in the prior quarter to no change, produced the big drag on the annual rate of GDP growth.

The chart shows total inventories in inflation-adjusted dollars. The shortages are clearly in the past:

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