**MNI DATA IMPACT: US Q1 GDP Surprise +3.2%; Net Exports, Inv>

By Kevin Kastner, Shikha Dave, and Harrison Clarke

     WASHINGTON (MNI) - First quarter GDP rose by 3.2%, well above the 

2.3% reading expected by a Bloomberg survey and the 2.0% gain expected 

in an MNI survey, with the key factors being improvements in net 

exports, private inventories, and state and local government spending.

     However, slower growth for PCE and nonresidential fixed investment 

and a further, though smaller, decline in residential investment left 

domestic consumption smaller.

     Also, the price components were noticeably softer, particularly the 

core PCE price index. 

     Here are some of the key factors from the data release on Friday: 

     - The GDP price index rose 0.9%, well below expectations, while 

the core PCE price index grew 1.3%, slower than the 1.8% gain in the 

previous quarter, and the softest pace since the second quarter of 2017. 

The year/year rate for the core PCE measure fell to 1.7% after slipping 

to 1.9% in the fourth quarter, the slowest 12-month rate in a year.

     - The deterioration in the price measures will give some Fed doves 

ammunition to discuss rate cuts, or at least a longer pause, especially 

as underlying economic growth slowed modestly beneath the shocking 

headline figure. Final sales to domestic purchasers rose only 1.4% 

after a 2.1% gain in the fourth quarter. 

     - Within the components, net export gap narrowed to $899.3 billion 

after widening to $955.7 billion in the previous quarter, while the 

change in inventories jumped to $128.4 billion from $96.8 billion in the 

previous quarter. 

     - Government spending rebounded by 2.4% due to state and local 

government spending, as Federal government spending was flat in the 

quarter, due in part to the January shutdown. The BEA said that the full 

effect of the shutdown cannot be quantified, but that impact of services 

provided by the government was roughly a 0.3pp cut to GDP. 

     - Offsetting these improvements, PCE growth slowed to a 1.2% rate 

from 2.5% in the previous quarter, the third straight quarter where the 

pace of consumption growth slowed. At the same time, nonresidential 

fixed investment growth slowed after a jump in the previous quarter, 

while residential investment fell for the fifth straight quarter. 

     - When only the inventory component is excluded, real final sales 

of domestic product were up 2.5%, higher than the 2.1% gain in previous 

quarter. 

     ** MNI Washington Bureau: 202-371-2121 ** 

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