Besides the Employment Report, the GDP Report is the most important economic release that affects investors and Wall Street as it measures the sum total of business activity in the country. Last week, the first of three revisions for the first quarter was released and it did not come up smelling like roses. The big question is if a trend is established or do greener pastures lie ahead?
Anemic With Silver Linings
The U.S. economy grew 1.8% in the first three months of the year, which was below the 2% growth expected by economists. There are many moving parts to the GDP Report and it helps to study the components to get a real feel for how the economy performed during the quarter. The components are actually more important than the sum total headline number.
Consumer expenditures is the largest part of GDP, making up over 70%, and the news was good on this front. It accounted for all the growth by itself, and is the most scrutinized portion because a healthy consumer means that future gains in GDP are likely. In addition to encouraging personal income and spending figures, this is a boon to the economy and should be celebrated. If employment picks up, this number could grow even more.
I like the fact that government spending took away a percentage point from the total. Washington is rarely hesitant to open it’s wallet (with our money) and spend like it’s going out of style. With the recent threat of downgrade by S&P, politicians are finally getting it through their heads that fiscal restraint needs to occur. This is an encouraging sign and I expect future reports to show the same. We don’t want our growth coming from the government because that is not what creates lasting gains.
All in all it was an average report, with nothing to really convert either the bulls or the bears. Each side will have something to point to in order to support their existing positions. Going forward, I think the housing market improving remains essential for sustainable growth as well as the employment picture accelerating. Without these two factors, we will continue to muddle along at below trend growth.
Breaking Down the First Quarter GDP Report is an article from: 
