US Q1 GDP: Sluggish start of the year, rebound expected - Wells Fargo

Analysts from Wells Fargo, explained that today’s Q1 GDP report showed lower than expected numbers reflecting, in part, significantly slower consumer spending growth and a sizeable inventory drag. They still expect a strong rebound in Q2. 

Key Quotes: 

“Hampered by perennial residential seasonality issues and one-off items, which have materially factored into the calculation, the first quarter of each year in this expansion cycle has more times than not resulted in a lower than-trend GDP growth performance. That turns out to be the case this year as U.S. real GDP increased at a modest 0.7 percent annualized rate in Q1, down from the 2.1 percent gain registered in Q4 2016.”

“Weakness was primarily centered on a much slower pace of consumer spending. After registering a strong 3.5 percent gain in Q4, real consumer spending advanced just 0.3 percent in Q1, the weakest annualized pace of growth since Q4-2009.”

“With the Q1 growth performance unfolding largely as expected, we remain confident with our rebound call for Q2. Since 2000, Q1 U.S. GDP has averaged 1.0 percent, followed by an average growth print of 2.6 percent in Q2. Business/consumer sentiment continues to suggest the weakness in Q1 was not the start of a new trend. On early signs of strengthening consumer spending, resilient BFI and residential construction activity, and incorporating a modest drag from trade, conditions continue to suggest U.S. GDP will rebound solidly in Q2–our current call stands at 2.9 percent.”