Evidence of Economic Momentum
Gross domestic product (GDP) growth was largely in line with expectations in the first quarter, with a 2.3% growth pace. That is slightly slower than Q4 2017, in which growth was 2.9%.
Slower growth in consumer spending was an important factor. Much of this slowdown, however, was driven by tapering car sales, following the post-hurricane surge seen last fall.
With solid household income growth and upbeat consumer confidence, consumer spending is set to remain an important growth driver, and the pick-up in retail sales towards the end of the quarter bodes well for Q2.
Business investments in real estate, equipment, and software showed a decent growth rate of 7.3%.
Getting to 3% for the Full Year?
So far, numbers have not reached the 3% mark. However, quarterly growth rates are notoriously noisy, and we would be careful about extrapolating from one quarterly number alone. Many indicators have shown significant acceleration over the recent six months, and company guidance on capital spending plans has been very positive in Q1 earnings calls.
GDP: Signs of Acceleration Heading into Second Quarter
Sources: Thomson Reuters Datastream, New York Life Investments, as of 4/27/18.
The Bottom Line
A 2.3% growth pace is a decent pace of growth, but by no means stellar. We believe the economy is set to accelerate to a growth pace above 3% in the near term, as both business equipment investments and consumer spending are set to contribute.
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