A second glance at
A shown in the LPL Chart of the Day, GDP rose 3.1% in the first quarter, according to the first revision released May 29. Although headline growth was revised down, it was still the biggest first-quarter GDP gain since 2015, showing the U.S. economy remained resilient against trade and political headwinds.
“We don’t think we’re heading for a recession in the near term, even after the latest trade escalation,” said LPL Research Chief Investment Strategist John Lynch. “Growth may slow as the expansion matures, but the U.S. economy has shown that it is durable enough to weather geopolitical storms.”
The drivers of last quarter’s growth were less impressive than the overall gain. Inventories and net exports still accounted for about half of first-quarter GDP growth, a temporary boost that could reverse in future quarters. Consumer spending’s contribution was revised slightly upwards, and business spending’s contribution was cut. Excluding inventories and trade impacts, GDP increased 1.5% in the quarter, its weakest “real final sales” growth since the end of 2015.
History leads us to believe that second-quarter growth could benefit from economic seasonality. The first quarter has typically been the weakest of all four quarters in this expansion, while the second quarter has been the strongest. Economic data also rebounded in April, encouraging is that business and consumer spending could fuel growth, even as the lift from net exports and inventories likely disappears. Trade is the primary risk to near-term growth, though, and it’s difficult to gauge how renewed trade tensions will impact second quarter GDP.
Overall, we expect economic growth to moderate from last quarter but still power through at a respectable pace for the 10th year of the soon-to-be longest ever economic cycle. In a worst-case trade scenario, we anticipate GDP growth of about 2% this year, in line with the average pace of growth so far in this expansion.
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