US GDP Exceeds Expectations At 3.2%

The first reading of U.S. GDP rose 1 percentage point to 3.2 percent in the first quarter against analyst expectations between 2 and 2.3 percent and Atlanta Federal Reserve estimates of 2.7 percent.

“The acceleration in real GDP growth in the first quarter reflected an upturn in state and local government spending, accelerations in private inventory investment and in exports, and a smaller decrease in residential investment,” according to the Bureau of Economic Analysis. “These movements were partly offset by decelerations in PCE and nonresidential fixed investment, and a downturn in federal government spending. Imports, which are a subtraction in the calculation of GDP, turned down.”

The dollar GDP rose 3.8 percent to $21.06 trillion, personal saving rose from $1.07 trillion to $1.11 trillion, and real disposable personal income growth decelerated from 4.3 percent last quarter to 2.4 percent this quarter.

The BEA will release a second, more informed estimate on May 30.

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Why It’s Important

Analysts warn that the nominal GDP number may be inflated by inventory buildup and a decline in exports, which could reverse in the next quarter.

UBP portfolio manager Mohammed Kazmi told Reuters the GDP print was increasingly important given hikes in the dollar. The dollar had posted strong gains leading up to the report, indicating expectations for the U.S. economy to outperform peers. It dipped slightly just ahead of the release.

“The dollar’s strength is beginning to gain investor attention and has led to vulnerable emerging markets such as Argentina and Turkey appearing exposed once again, whilst it also seems to be a headwind for U.S. risk markets in which momentum is stalling, despite decent Q1 earnings thus far,” Kazmi said.

Other Economic Benchmarks

Earlier this month, the U.S. reported a steady unemployment rate of 3.8 percent with quarterly employment growth averaging 180,000 jobs per month.

At the last Federal Reserve meeting, the Federal Open Market Committee committed to maintaining current federal funds rates, which provides a stable base for inflation. The Fed meets next week to decide whether to change its rate, and analysts expect no further tightening.

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