Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.7 percent in the first quarter of 2007, according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.5 percent.
This should come as no real surprise. While the upward tick is nice, it still indicates growth in the first quarter was terrible.
Let's look a bit deeper into the numbers to see what we have.
Real personal consumption expenditures increased 4.2 percent in the first quarter, the same increase as in the fourth quarter.
Because PCEs account for 70% of GDP growth, it's imperative for this number to grow in order for the economy as a whole to grow. That makes this increase a welcome development. Durable goods expenditures increase at an 8.7% SAAR, while expenditures for nondurable goods increased 3.2% SAAR and expenditures for services increased at a 3.8% SAAR. These are all solid numbers.
Real nonresidential fixed investment increased 2.6 percent, in contrast to a decrease of 3.1 percent. Nonresidential structures increased 4.8 percent, compared with an increase of 0.8 percent.
Residential investment decreased at a 15.8% SAAR.
Nonresidential construction is now slightly larger than residential construction according to the Census Bureau's construction spending number. That means nonresidential spending is helping to alleviate the problems associated with the housing downturn. However, gross private domestic investment still decreased at a 9.6% SAAR.
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.7 percent in the first quarter, 0.1 percentage point more than the preliminary estimate; this index increased 0.2 percent in the fourth quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 2.9 percent in the first quarter, compared with an increase of 2.4 percent in the fourth. About 0.2 percentage point of the first-quarter increase in the index was accounted for by the pay raise for federal civilian and military personnel, which is treated as an increase in the price index of employee services purchased by the federal government.
Hopefully by now everybody knows that I think the core inflation argument is garbage. However, the Fed will look at that number and not be happy. Core inflation increased from from 2.4% to 2.9%. In addition, the price index for PCE's increased 3.5%. This will also make the Fed unhappy.
Short version:
Good: The Consumer is still spending at a strong rate and growth ticked up a bit.
Bad: PCE prices increased, investment was low, housing is still in a recession. It's not the best of reports.
