US economy grows 3.2% in Q1, lacks momentum domestically

The US economy grew faster than expected in the first quarter of 2019, driven mostly by exports and inventories, but economists worried that a lack of momentum domestically might drag growth in the future.

The 3.2 percent annual growth rate of real gross domestic product, announced by the Department of Commerce on Friday, indicated an acceleration of economic expansion from the downwardly revised annual rate of 2.2 percent in the fourth quarter of 2018.

US President Donald Trump tweeted that the 3.2 percent first-quarter expansion "is far above expectations or projections," adding that inflation is "very low." Economists polled by The Wall Street Journal expected a 2.5 percent rise, the journal reported.

The pickup in pace is mostly driven by strong exports and private inventory investment, according to the department's report.

Exports were up 3.7 percent in the quarter, while net exports, measured by exports subtracting imports, contributed 1.03 percentage points to the quarter's GDP growth.

Given the uncertainties in trade flows between the United States and its trading partners brought about by the ongoing frictions, the upturn in exports is believed to be incidental rather than a lasting driving force for the economy.

As for the inventory investment, another category that is largely viewed as volatile, nonfarm private inventories added 0.67 percentage points to growth in the three-month period. The department said the acceleration reflected an upturn in manufacturing inventories for durable and nondurable goods industries.

Growth in consumer spending, which accounts for more than two-thirds of US economic output, decelerated to 1.2 percent, compared with a 2.5 percent rise in the final quarter of 2018.

Business investment, meanwhile, was stronger than that in the fourth quarter, but rise in nonresidential fixed investment softened to an annual rate of 2.7 percent, down from 5.4 percent in the previous quarter.

The quarterly GDP report also showed that the price index for personal consumption expenditures increased at a 0.6 percent rate in the first quarter, compared with 1.5 percent in the previous quarter.

Core prices, which exclude the volatile food and energy prices, rose at a 1.3 percent rate. As a measure of overall inflation, the PCE price index is an important reference for officials at the Federal Reserve when making policy decisions.

In addition, growth in residential investment, a proxy for housing construction, fell to 2.8 percent in the first quarter, marking the fifth drop in a row.

In light of the above slowndown, economists are concerned that the US economy lacks momentum on the domestic front.

"Over half of those gains can be attributed to a surge in inventories and a narrowing in the trade deficit," Diane Swonk, chief economist at the Chicago-based Grant Thornton LLP, wrote in an article commenting on the first-quarter growth. "Underlying momentum in the domestic economy was particularly weak."

The first-quarter advance estimate released Friday is based on source data that are incomplete or subject to further revision by the source agency, the Commerce Department said, adding that a second estimate based on more complete data will be released on May 30.

"Prospects for growth in the second quarter now look much worse because bloated inventories must be depleted. The hope is that consumers bounce back to do some heavy lifting," Swonk said.

Echoing Swonk, Jason Furman, previously an economic adviser for former President Barrack Obama and a professor at Harvard University, tweeted that despite the 3.2 percent surge, "the underlying data is much weaker and is consistent with a slowing economy."

"To the degree today's data has any info, it is that the underlying trend of consumption and investment is weakening," Furman added. "And no reason to believe we'll get lucky again next quarter" with inventories, net exports and government spending.

In its new World Economic Outlook released on April 9, the International Monetary Fund said that due to "the unwinding of fiscal stimulus," US economic growth is forecast to slow to 2.3 percent in 2019, down 0.2 percentage points compared with the IMF's January estimation.

Despite the anticipated deceleration, the IMF said the pace of expansion for 2019 is above the US economy's estimated potential growth rate.