–Business Investment Hit by COVID Impact, Residential Investment Soared
–Imports -15.3%; Price Index +1.3%
By Kevin Kastner
WASHINGTON (MaceNews) – The U.S. economy contracted in the first quarter, as growth in January and February was more than wiped out by business shutdowns late in March, a trend that will likely carry over into the second quarter.
First quarter GDP fell by 4.8%, compared with a 3.7% decline expected, with consumption and business investment the hardest hit by the sudden halt to business activity.
Personal consumption expenditures fell by 7.6%, a much larger drop than the 1.5% decrease expected. Goods consumption fell by 1.3%, particularly for durable goods such as vehicles, while services spending fell by 10.2%. Restaurants and lodging, two of the biggest sectors hit by the closures, fall into the services category.
A few states have moved to reopen in early-May, which could allow retail establishments to get back to a normal level of business at some point in the second quarter after starting off in a deep hole from April.
Nonresidential fixed investment fell by 8.6%, reflecting a 9.7% drop in structures and a 15.2% decline in equipment spending, as firms took a wait-and-see attitude at the end of the quarter. The need to ramp back up in the summer or earlier could help business spending to rebound in the second quarter.
Inventories fell by $16.3 billion in the first quarter following a $13.1 billion increase in the previous quarter. Soft demand, particularly at the retail sales level, kept items on the shelves even as manufacturing activity slowed.
There were some positive signs in the report.
Residential fixed investment jumped by 21.0% as home buyers sought to take advantage of low interest rates and, pre-COVID at least, a strong economy. Soft home building data for March suggest the quarter ended lower, lending a weak start to the second quarter.
While it is fair to assume that social distancing could prevent a repeat of the solid first quarter numbers, there may be some support from current homeowners choosing to remodel their homes while they have the time.
The net export gap narrowed to $817.4 billion from $900.7 billion in the previous quarter, reflecting an 8.7% decline in exports and a 15.3% decline in imports.
Advance trade data for March released Tuesday showed that exports plunged at the end of the quarter, as the March shutdowns impacted shipments of products, while overseas slowdowns cut into foreign demand from the U.S. and imports into the U.S. as early as February.
Government spending rose by 0.7% in the first quarter, reflecting a 1.7% increase in federal government spending and a 0.1% uptick in state and local government spending.
While federal spending is likely to rise further in the second quarter, states and counties suffering from missing income and sales tax revenues are likely to pull back on any unnecessary spending for much of the remainder of the year.
The price measures were generally in line with expectations, lifting their year-over-year rates.
The overall GDP price index rose by 1.3%, compared with a 1.2% increase expected. The PCE price index also rose by 1.3%. At the same time, the GDP price index excluding food and energy rose by 2.0% and the core PCE price index rose by 1.8%. The year/year rates for all four measures were up from their fourth quarter readings.
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Contact this reporter: kevin@macenews.com
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