Real GDP (Q1-2024, second estimate)

Q1 GDP Revised Slightly Lower, But Details Show Domestic Economy Still Strong 

• The second estimate of first quarter real GDP growth was revised down 0.3 percentage points (pp) to 1.3% quarter-over-quarter (annualized) – bang-on the consensus forecast.
• Looking under the hood, downward revisions to consumer spending, private inventory investment, and federal spending were partly offset by upward revisions to state & local government spending and fixed investment.
• Consumer spending was downgraded to a 2.0% pace (previously 2.5%), largely due to a sharper pullback in durables spending (-4.1% vs. prior -1.2%). Non-residential investment was revised 0.4pp higher to 3.3%, thanks to a meaningful upgrade to intellectual property products (7.9% vs. prior 5.4%).  
• Federal spending was reported to have contracted by 0.7% (previously -0.2%), while state & local government spending rose by a slightly stronger 2.6% (previously 2.0%).
• Net exports shaved 0.9pp from Q1 growth (unchanged from the prior estimate). However, the drag from net inventories is now reported to be slightly larger at 0.5pp (previously 0.4pp). 
• Real Gross Domestic Income (GDI) rose by 1.5% in the first quarter, a deceleration from Q4-2023's 3.6%. Corporate profits were a touch lower last quarter, falling 2.5% (annualized) or $21 billion after accounting for inventory valuation and capital consumption adjustments. However, the pullback was more than offset by a healthy 7.1% gain in personal income. The increase primarily reflected gains in compensation and personal current transfer receipts. 
• The average of GDP and GDI, a supplemental estimate of domestic production, rose 1.4% in the first quarter – largely aligning to the pace of growth suggested by the expenditure GDP data.

Key Implications

• The second estimate of first quarter GDP showed a slightly softer pace of economic expansion than previously reported. However, the overarching narrative has not changed. Even after accounting for the downward revisions, final sales to domestic purchasers (our best gauge of domestic activity) still advanced by a healthy 2.8% (previously 3.1%), and if not for a sizeable drag from net exports and inventories, first quarter growth would have come in at 2.6%. 
• April's personal income and spending data (released on Friday, May 31st) will give us the first snapshot on spending trends for Q2 and provide the revised monthly profile for Q1 PCE. While this morning's downward revision to spending implies less momentum coming into Q2, it is still tracking somewhere in the 2.5%-3% range. With the headwinds from first quarter growth abating, and the domestic economy still holding steady, Q2 GDP is tracking a trend-like pace of 2.3%.  

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