Consumer spending rose at a robust clip making it the silver lining within a dour first quarter growth report. According to the Commerce Department the overall economy rose by only 0.1% in the three months ending March and down from a 2.6% prior quarterly pace. Consumption, however, rose by 3.0%, driven by utility outlays and spending related to healthcare reform.
As we noted in response to the earlier ADP employment report, the labor market appears to be shrugging off the impact of a harsh winter and for that reason most investors will likely overlook any signals the economy appears to be giving as the headlines hit traders’ screens. The drop in growth is far larger than expected with most major components going into reverse.
In terms of the contribution to GDP, consumption expenditure added 2.04% while investment activity subtracted by 1.01%. Residential construction weighed the headline growth rate down by 0.18% while inventories subtracted 0.57%. Net exports deprived growth of 0.83% while contraction in government saw growth weaker by 0.09%. Federal government actually did add to the bottom line but was offset at eth state and local level.
GDP and consumer spending