May 8, 2018 What Q1 GDP Tells Us About the Economy (and What It Doesn’t)
The state of the economy and the state of the real estate industry may not be following an identical trajectory, but they’re correlated closely enough that it’s well worth it for those interested in how commercial real estate is doing to keep an eye on how the economy is doing.
So how exactly is the economy doing?
There are, of course, many ways to answer that question that take into account a wide range of variables, including retail sales, job growth and manufacturing. But one of the primary economic indicators is gross domestic product… and the latest GDP numbers might make you go hmm.
GDP grew at an annual rate of 2.3% in Q1 ‒ down from 2.9% in the previous quarter and below President Donald Trump’s targeted growth rate of 3% and from the Federal Reserve of Atlanta’s January forecast of a whopping 5.4% GDP rate in the quarter. (More moderate expectations of 2% growth, though, were exceeded.)
At the same time, consumer spending, another key economic indicator, had a sluggish first quarter, slowing from 4% in the previous quarter to 1.1%
But dig a little deeper, and you’ll find factors that could point to greater growth in the current quarter and the rest of the year.
“I would not lose sleep over first-quarter GDP,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, citing the seasonality factor of soft Q1 growth. “Overall the economy is doing very well and will continue to do well this year and into 2019.”
Economists expect growth to accelerate in Q2 despite the slow start, Reuters reported, citing the effect of increased government spending and tax cuts for businesses and individuals.
Though the quarter was the first to reflect tax reforms that went into effect Jan. 1, consumers were the stingiest they’ve been in five years. Thanks to the new tax rates, consumers had 3.4% more disposable income available in Q1, but that didn’t mean they opened their wallets right away.
However, consumer spending appears to be on the road to recovery, with late April data showing that Americans did open those wallets in March. Spending rose by 0.4% in March, the highest increase in three months, as an inflation gauge tied to consumer spending advanced at the fastest pace in over a year.
Exports climbed 4.8% in Q1 vs. a 2.6% increase in imports. Yet, it’s unclear how this might change if Trump goes ahead with planned tariffs on thousands of imported goods, potentially spurring retaliatory economic measures.
Plus, GDP estimates are revised over time. We won’t have long to wait; the first revision is set to be released May 30.