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📈📊 Real GDP during Q1 only rose 1.1% (saar), but don’t let that number fool you!
Let’s break down why economic growth wasn’t as weak as it seems and how inventories played a role in shaping the GDP 🧵
Let’s break down why economic growth wasn’t as weak as it seems and how inventories played a role in shaping the GDP 🧵
In Q1, the real GDP rose only 1.1% (saar), but there's more to the story. During Q4, inventories surged as consumers shifted from buying goods to services.
Goods producers stopped building unwanted inventories by cutting orders and lowering prices, reducing inventories.
Goods producers stopped building unwanted inventories by cutting orders and lowering prices, reducing inventories.
Excluding inventories, real final sales rose 3.4% during Q1, led by a solid 3.7% increase in real consumer spending.
This helped reduce inventories, and the chart shows the increase in real consumer spending.
This helped reduce inventories, and the chart shows the increase in real consumer spending.
In Q1, inventories declined $1.6 billion in real GDP after soaring by $136.5 billion during Q4. This swing depressed real GDP significantly.
This is why manufacturing indicators, particularly new orders, have been weak in recent months. The rolling recession has been rolling through the goods sector of the economy, while the services sector has been booming.
However, in April, the average of the new orders indexes compiled in the regional surveys conducted by five Federal Reserve Banks rose, suggesting that orders may be bottoming out.
If that's the case, then inventories should be a positive contributor to real GDP during Q2.
So, while the real GDP during Q1 may seem weak, excluding inventories shows a different picture. With the potential for a positive contribution from inventories in Q2, it will be interesting to see how the economy performs moving forward. #EconomicGrowth #GDP #Inventories
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