GDP growth shattered expectations early in 2019. But economists say the recovery is unlikely to last.



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american flag building workersDavid McNew / Getty

  • The pace of economic growth exceeded expectations in the first quarter.
  • But broad reading may have masked pockets of weakness in the economy.
  • Perhaps most worrisome for economists: a less volatile measure of private sector activity was surprisingly weak in the first quarter.

Gross domestic product, which measures all goods and services produced in the country, grew at a much faster pace than expected in the first quarter. But broad reading may have masked pockets of weakness in the economy.

"It is fair to say that the title of today is exaggerating the strength of the economy," said Friday Eric Winograd, US economist at AllianceBernstein investment company.

The factors that led to a 3.2% increase in GDP over the previous year are not expected to last. Economists have said that the sharp rise in exports, for example, was largely due to the rush of corporate orders before the planned escalation of the ongoing trade war between Washington and Beijing.

"Put an asterisk next, because the expansion in the first quarter was due to an unsustainable inventory buildup, a temporary narrowing of the trade deficit and a one-time increase in government-sponsored construction," said Joe Brusuelas , chief economist at consulting firm.

The underlying data of Friday's report indicated a softening of consumption and investment, which corroborates the widespread expectations of a slowdown in growth in the coming months. The main measures of inflation have actually declined, the price index of personal consumption spending being well below the 2% target set by the Federal Reserve.

Perhaps most worrisome for economists: a less volatile measure of private sector activity was surprisingly weak in the first quarter.

Real final sales to private domestic buyers, which exclude purchases made by the government, reached their lowest level in six years, at 1.3% between January and March. This was compared to 2.6% at the end of 2018 and marked a third consecutive quarter of decline.

"Statistically, it's a better predictor of future GDP impressions," said Jason Furman, chairman of the Obama Council of Economic Advisers to the White House. on Twitter. He added that the measure excluded the very data that propelled Friday's estimate of the title.

Nevertheless, from a global trade war to a slowdown abroad, the US economy appeared to be resisting many tensions in the first quarter. The report helped to ease worries about the collapse of the long-term economic expansion and suggested that forecasts of an impending recession be passed.

Hours after Friday's report, White House economic advisor Larry Kudlow called on the Federal Reserve once again to reduce interest rates. The Federal Open Market Committee is not expected to adjust interest rates at all this year, but authorities have announced at least one increase in 2020.

"One thing is certain: it is impossible for the FOMC to cut rates after this report," said Ken Kuttner, a former Fed member and economist at Williams College. "It would take a significant negative shock, or several months of bad numbers, before cuts are contemplated."

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