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First-quarter report: Consumer, government spending propel growth

April 29/May 6, 2019: Volume 34, Issue 24

By Reginald Tucker

 

A newly released report from the U.S. Department of Commerce’s Bureau of Economic Analysis shows real gross domestic product (GDP) increased at an annual rate of 3.2% in the first quarter of 2019, surpassing many economists’ expectations. To put things in perspective, GDP grew 2.2% in the fourth quarter of 2018.

The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures, private inventory investment, exports, state and local government spending, and nonresidential fixed investment. However, imports—which are a subtraction in the calculation of GDP—decreased. These contributions were partly offset by a decrease in residential investment.

“Usually when you look at the GDP performance of any year, the first quarter is typically the weakest,” said Alison Kosik, business anchor and correspondent at CNN. “But this happens to be the strongest first quarter that we’ve seen in six years.”

Following is a closer look at specific elements of the report.

Current dollar GDP increased 3.8%, or $197.6 billion, in the first quarter to $21.06 trillion. In the fourth quarter, current-dollar GDP increased 4.1%, or $206.9 billion.

The price index for gross domestic purchases increased 0.8% in the first quarter compared with an increase of 1.7% in the fourth quarter. The personal consumption expenditures price index increased 0.6% compared with an increase of 1.5%. Excluding food and energy prices, the personal consumption expenditures price index increased 1.3% compared with an increase of 1.8%.

Current-dollar personal income increased $147.2 billion in the first quarter compared with an increase of $229 billion in the fourth quarter of 2018. Meanwhile, disposable personal income increased $116 billion, or 3% compared with an increase of $222.9 billion, or 5.8%, in the fourth quarter of 2018. By comparison, real disposable personal income increased 2.4%.

Personal savings reached $1.11 trillion in the first quarter compared with $1.07 trillion in the fourth quarter of 2018. Furthermore, the personal saving rate, which represents personal savings as a percentage of disposable personal income, was 7% in the first quarter compared to 6.8% in the fourth quarter.

Role of housing in GDP

Housing’s share of GDP continued a downward trend—more evidence of the lack of housing supply caused and affected by ongoing housing affordability issues, noted Robert Dietz, chief economist with the National Association of Home Builders (NAHB).

Research shows housing’s share of GDP fell to 14.7%. The home building and remodeling component (residential fixed investment) made a fifth consecutive negative contribution to GDP growth and declined to just under 3.2% of GDP.

According to Dietz, housing-related activities contribute to GDP in two basic ways. The first is through residential fixed investment (RFI), which essentially is the measure of the home building, multifamily development and remodeling contributions to GDP. It includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees.

The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters and owners’ imputed rent—an estimate of how much it would cost to rent owner-occupied units—and utility payments. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in homeownership would result in declines for GDP.

For the first quarter, housing services was 11.5% of the economy or $2.18 trillion on seasonally adjusted annual basis. Taken together, housing’s share of GDP was 14.7% for the quarter, Dietz noted.

Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle, Dietz noted.

Regarding the flooring space, the consensus among many dealers polled by FCNews indeed showed a measurable uptick in purchasing activity late in the first quarter after somewhat of a slow start to the year.

“After record sales year last year, I was planning on low, single-digit growth in 2019,” said Craig Phillips, president, Barrington Carpet, Akron, Ohio. “But we will end the quarter up about 9%. Thus, the year so far has exceeded my expectations. Our growth is being driven by commercial and multi-family segments.”