Even the Fed’s repressed inflation measure without food and energy rose 2.3% annual rate in Q1.
By Wolf Richter for WOLF STREET.
The US economy, as measured by inflation-adjusted GDP, grew by 1.6% in the first quarter from Q4 2020, according to the advance estimate of the Bureau of Economic Analysis this morning.
If you read in the headline that it grew by “6.4%,” that sounded impressive, but it was “annualized”; it essentially multiplied the quarterly growth rate (1.6%) by 4. There are not many countries outside the US, if any, that report “annualized” GDP growth rates, because they’re really just misleading for normal people.
GDP inflation jumped by 3.8%, PCE inflation by 3.5%.
The BEA’s broadest inflation measure, the price index that roughly parallels the inflation adjustment to GDP (the “price index for gross domestic purchases”), jumped by 3.8% annual rate in Q1, more than double the rate of 1.7% in Q4.
The BEA’s narrower PCE (“personal consumption expenditure”) price index jumped by 3.5% annual rate in Q1.
And the BEA’s price index that has become the Fed’s measure for inflation, “core PCE” (PCE without food and energy) rose by 2.3% annual rate, tracking above the Fed’s former target of 2.0%. “Former target” because now the Fed is looking for inflation above 2%.
GDP in dollars.
In dollar terms, real GDP in Q1 amounted to a “seasonally adjusted annual rate” of $19.09 trillion. This was still down about 0.9% from the peak in Q4 2019 – catching up:
Consumer spending rose 2.6% from the prior quarter, to an annual rate of $13.3 trillion in “chained 2012 dollars” (to adjust for inflation), a tad below the peak in Q4 2019.
This jump was powered by the $600 stimmies that went out in late December and the first waves of the $1,400 stimmies that went out in the latter part of March. In Q1, consumer spending accounted for 69.7% of GDP:
Gross private domestic investment ticked down 1.3% in Q1 from the prior quarter to a seasonally adjusted annual rate of $3.49 trillion. This includes:
- “Fixed investment” rose by 2.4% (investment in nonresidential structures and equipment, in residential structures, and in intellectual property) to $3.54 trillion (annual rate).
- Investment in private inventories fell by $148 billion (annual rate), as numerous items are now in short supply and tangled up in all kinds of supply chain issues and bottlenecks
Record Trade Deficit, a massive drag on GDP. The balance of “net exports” (exports minus imports, namely the infamous trade deficit) worsened by 4.8% in Q1, from the prior quarter, to a new all-time worst of -$1.18 trillion (annual rate 2012 dollars).
Exports add to GDP, imports reduce GDP. It went the wrong way with all of them in Q1. Exports of goods ticked down, and exports of services ticked down; but imports of goods jumped and imports of services rose. The chart makes one wonder how the US economy could perform if globalization and offshoring of everything for two decades hadn’t left us with this mess:
Government consumption and investment rose by 1.5% in Q1 from the prior quarter to $3.37 trillion (annual rate). This includes goods and services that federal, state, and local governments consume, such as fuel for government vehicles, supplies, equipment, and rent for offices. And it includes government investments, such as in computer equipment and infrastructure.
But it does not include stimulus payments, unemployment payments, Social Security payments, government salaries, and other direct payments to consumers, which are counted in GDP when consumers spend this money as part of consumer spending:
The inflationary mindset has set in. Input price increases are squeezing profit margins, and big companies are raising their prices and point at massive inflation overshoot. Smaller companies are too, with boots-on-the-ground view of surging costs in the roofing manufacturing industry. Read… Forget 2% Inflation. With Margins Forcefully Squeezed, Big Companies Raise Prices, Point at Massive Inflation Overshoot
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