First quarter GDP revised to show more growth

The Commerce Department’s “preliminary” report (meaning it’s subject to one more revision) on first-quarter 1998 GDP showed annualized growth of 4.8% — even better than the 4.2% gain originally estimated. And the news about inflation was exceptionally favorable as well, with the price index for gross domestic purchases unchanged between the fourth quarter of last year and the first quarter of 1998.

The first quarter GDP increase was driven by strong gains in consumer spending, capital spending for new equipment, and residential investment. Consumer purchases are estimated to have risen at a 6.1% rate during the first quarter of this year, more than twice the growth rate recorded for October-December 1997. Durable goods purchases soared to a 15.9% annualized growth rate during the first three months of this year after rising by a scant 1.9% in the fourth quarter of 1997. Nondurable goods purchases increased 6.5% in the first quarter, after having posted absolute declines in two of the previous three quarters. And services expenditure growth (which represents almost 60% of total consumer spending) was a solid 4% — well above the 2.9% average gain recorded during the past 3 yr.

The news wasn’t all good, however. The advance GDP report showed that business investment in new buildings declined for the second consecutive quarter and for the fourth time in the past five quarters. The first-quarter 1998 loss was a sharp 7.4%, the largest quarterly decline for this series in more than 5 yr.

The most significant loss, at least in terms of its implications for the overall economy during the balance of 1998, was the 3% decline posted by the export sector. After expanding by 12.3% during 1997, exports during the first three months of 1998 shrunk for the first time during this more than 7-yr-old economic expansion. At the same time, imports surged to a 17.7% growth rate in the first quarter. Taken together, this led to a huge increase in the nation’s already-yawning trade deficit and subtracted several percentage points from potential GDP.

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