Analysts were forecasting a significant weakening of GDP in Q1 versus a solid pace in Q4, and they got it, but not to the degree they expected. Real gross domestic product rose 2.32% annualized in the first three months of 2018, the slowest pace since Q1 of 2017. That was still stronger than the 2.0% forecast by economists. Notably, that was the first beat for a Q1 GDP print in almost a decade…the last time analysts undershot the start of the year was Q1 2008.

As shown in the chart above, the deceleration in output was mostly a function of consumption. As shown in the chart, consumer spending rose over 4% in real terms in Q4 at an annual pace. That was the strongest pace since Q4 2014, when consumer outlays rose at a 5% annual rate. Nonresidential fixed investment (business capital expenditures) continues to run at a robust pace over 6% annualized. While that pace is strong, it’s interesting to note that 3 of the prior 4 quarters were stronger.

Given typical weakness in Q1 and the lumpy consumer spending numbers, this GDP report ended up pretty well all things considered. We should also emphasize that the first reading of GDP is always the least accurate, so revisions are worth keeping an eye on.

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