Viewing article within:
Wall Street to Your Street
Weak GDP Growth Figure Obscures Economic Gains
May 2, 2017 | Russ Swansen, Chief Investment Officer
The bad news is U.S. gross domestic product (GDP)1 growth slowed to an annualized rate of just 0.7% in the first quarter of 2017 – the lowest growth rate in three years – according to the advance estimate of the U.S. Department Commerce GDP report issued April 28.
The good news is there are a number of other fundamental factors that portray a much more positive outlook for the economy.
GDP is expected to grow at about 2.3% in 2017, according to the Blue Chip Economic Indicators, and, in fact, that number could move higher if certain promising areas of the economy gain traction. The 0.7% first quarter GDP growth figure is just a preliminary estimate that will be revised in late May after more data is collected.
There are some other mitigating factors that may have tempered the latest GDP growth figure:
- Consumption growth, which makes up the largest share of GDP, was very weak at 0.23% – the lowest since 2009. But that reflected a drop in auto sales, which had been very strong over the previous year, retail sales, which were unexpectedly weak in March after several strong months, and utility revenues, which may have declined due to unseasonably warm weather.
- Inventory investment, which had been growing, dropped by 0.93% for the quarter. Inventory numbers could strengthen in the months ahead.
- State and local government spending declined for the quarter, but that's not expected to continue.
- Growing imports also negatively affected GDP (imports are a subtraction in the calculation of GDP.) But growing imports are a function of a strong U.S. dollar, which makes foreign goods cheaper here.
Some other economic factors would seem to point to a growing economy:
- A total of 287 of S&P 500® companies have reported sales growth averaging 7.86% and earnings growth averaging 15.57% for first quarter, according to Bloomberg Finance. Those are among the strongest corporate revenue and earnings figures we have seen in many years.
- There was a 1.12% increase in nonresidential fixed investment, which was the strongest in three years. Rising fixed investment should serve to improve productivity growth numbers, which have been weak in recent years.
- Investment was also strong in the housing and oil drilling markets.
While the latest GDP numbers were lower than expected, we don't believe that they are a true reflection of the overall strength of the economy. We see a number of signs that lead us to believe that GDP growth will pick up over the remainder of 2017.
Part of Thrivent Financial's mission is to help people make wise financial decisions. If you found this article helpful, please share it with a friend.
Media contact: Callie Briese, 612-844-7340; email@example.com
All information and representations herein are as of May 2, 2017, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by Thrivent Asset Management associates. Actual investment decisions made by Thrivent Asset Management will not necessarily reflect the views expressed herein. This information should not be considered investment advice or a recommendation of any particular security, strategy or product.
Asset management services are provided by Thrivent Asset Management, LLC, a wholly owned subsidiary of Thrivent Financial, the marketing name for Thrivent Financial for Lutherans.
1 Gross domestic product (GDP) is the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production. GDP is also equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.