WASHINGTON—Despite slow economic growth in the first quarter, one economist predicts better results in Q2—which will also lead to another rate hike by the Fed.
Amid the sluggish start, the U.S. economy grew an upwardly revised 0.8% in the first quarter due to higher estimates for residential investment, inventories and net exports, according to the Commerce Department’s second estimate of growth for the period.
“While first-quarter GDP remained low despite the upward revision, there are a number of reasons to anticipate a rebound in the second quarter,” NAFCU Chief Economist and Director of Research Curt Long said in a NAFCU Macro Data Flash report. “Incoming data has been noticeably stronger, the drags from low oil prices and a strong dollar were less than previously estimated, and there is still a possibility that the government’s seasonal adjustment continues to underestimate GDP in the first quarter while boosting it in subsequent quarters.”
Consumer spending increased 1.9% and government spending increased 1.2%, according to the data, and residential investment increased a revised 17.1%. Nonresidential investment decreased 6.2%, a larger drop than initially estimated. However, drags from inventory accumulation ($69.6 billion) and net exports (-$561.2 billion) were smaller than initially thought, Long reported.
Contributions to growth of real GDP came from gains in personal consumption expenditures (1.29%), residential investment (0.56%) and government spending (0.20%). Drags on growth came from nonresidential investment (-0.81%), changes in net exports (-0.21%) and changes in private inventories (-0.20%).
Core PCE inflation (excluding food and energy), the Fed’s preferred inflation metric, increased from 1.3% in the fourth quarter of 2015 to 2.1% in the first quarter. Overall PCE inflation was 0.3% in the first quarter, the same as the fourth quarter, Long stated.
“Overall, this is another in a string of positive data releases, which will provide plenty of ammunition for the Fed to raise rates no later than July,” Long added.