Real Q1 GDP contracted by a greater than expected 6.1% vs forecasts of
-4.7% but the components were very mixed. Personal spending rose 2.2%,
greater than estimates of .9% but Inventories subtracted 2.8% off GDP,
falling by $103.7b and Govt spending took off an uncharacteristic .8%
from GDP. Trade added about 2% points. Taking out the huge impact that
the inventory drawdown had on GDP, Real Final Sales fell 3.4% after a
6.2% drop in Q4. Also, relative to expectations, the price deflator rose
2.9%, 1.1% more than expected, thus NOMINAL GDP was only .3% worse than
expectations. Residential construction fell by 38%, the biggest decline
in this down cycle and spending on equipment and software fell by 33.8%.
Core PCE rose 1.5%, .5% more than expected. Bottom line, the huge
inventory drawdown will be reversed to some extent to the upside, thus
helping economic activity and that’s why the market hasn’t responded
much to the weaker headline #.

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