Strong Economic Growth in the First Quarter, but the Devil's in the Details

Strong Economic Growth in the First Quarter, but the Devil's in the Details


The U.S. economy grew at an unexpectedly strong 3.2% annual pace in the first three months of 2019, according to an initial estimate released by the Commerce Department Friday. Economists surveyed by The Wall Street Journal had projected 2.5% growth for the quarter, while a Bloomberg survey had put that number at 2.3%.  

Kevin Hassett, chair of the Council of Economic Advisers, said that the results show that President Trump’s economic policies were paying off. “It confirms our view that the momentum from last year was not a sugar high but a serious response to long-run policies that have made the U.S. a more attractive place for business,” Hassett told The Wall Street Journal.

Paul Ashworth, chief U.S. economist at Capital Economics, said that the growth figure “would seem to make a mockery of claims that the US economy is slowing as the fiscal stimulus fades.” However, dig into the details of the report and “there are plenty of causes for concern,” Ashworth wrote in a note to clients.

A buildup of inventories contributed about 0.7 percentage points to the 3.2% growth figure, which is unlikely to repeat and will likely reverse itself in the current quarter. Net exports added another point, but that isn’t likely to last either. “The upshot,” Ashworth said, “is that, stripping out trade and inventories, final sales to domestic purchasers increased by only 1.4%, which is the smallest gain in more than three years.”

MarketWatch’s Rex Nutting said the details of the report were consistent with a slowing economy, despite the strong top line. “The tax cut was supposed to supercharge the private-sector,” Nutting wrote, “and it did — for a few quarters.”

Dean Baker of the Center for Economic and Policy Research noted that capital investment was weak in the quarter, growing at a 2.7% annual rate. “The performance on investment has been notably weak over the last year, growing at a modest single-digit rate,” Baker wrote on CEPR’s blog. “The administration’s projections of the impact of its tax cut imply growth in the neighborhood of 30 percent. We clearly are not seeing anything like this.”