U.S. Q1 GDP growth second estimate revised down to 2.2 pct, Fed likely to hike rates again in 2018

The U.S. economy expanded at an annualized rate of 2.2 percent in the March quarter, showed the BEA’s second estimate. That was slightly below the advanced estimate, but consistent with expectations. Consumer spending continued to be weak at 1 percent annualized. The first quarter pause in spending came after a very sound fourth quarter, where spending rose 4 percent driven by post-hurricane related re-stocking activity.

Meanwhile, business investment was upwardly revised from 7.3 percent to 9.2 percent. Investment in structures led the way, up 14.2 percent. Spending on equipment was upwardly revised to 5.5 percent as were outlays on intellectual property, which jumped 10.9 percent annualized from 3.6 percent in the advanced release.

Residential investment was downwardly revised to a 2 percent fall, after initially being reported as flat. Partially countering the upward boost from business investment were smaller positive contributions from inventory building and net exports. A slight downward revision to exports and upward revision to imports meant that trade contributed 0.1 percentage points to growth rather than 0.2 in the advanced estimate. Overall, these were rather uneventful revisions, noted TD Economics in a research report.

“Beyond June, we expect the Fed to raise rates once more this year. Given the recent improvement in inflation there is upside risk to that view, but it is being tempered by continued plans to impose import tariffs. These have negative consequences for business confidence and our outlook for investment”, stated TD Economics.

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