Consumers, Governments Spent like Drunken Sailors in Q1. Private Investment Plunge & Inventory Change Dogged GDP

Americans came out of their funk they’d been in late last year. They’re 70% of GDP. And they blew money left and right; spending on durable goods spiked!

By Wolf Richter for WOLF STREET.

GDP, adjusted for inflation, rose by 1.1% in Q1 from Q4, following the 2.6% increase in Q4 and the 3.2% increase in Q3, according to the Bureau of Economic Analysis today. The major factors, all adjusted for inflation:

  • Consumer spending, which accounts for about 70% of GDP, surged by 3.7%, the biggest increase since 2021.
  • Government spending at all levels surged by 4.7%.
  • The trade deficit got a little less horrible.

But GDP was dragged down bigly by Change in investment in private inventories, which subtracted 2.3 percentage points from GDP; and Gross private domestic investment, which plunged.

Consumer spending on goods and services, adjusted for inflation, surged by an annual rate of 3.7% in Q1 from Q4, the biggest increase since Q2 2021 during the stimulus money binge. Late last year, Americans had slowed their spending binge a little, but this quarter they came out of their funk, as we have seen in strong retail sales (goods) and in consumer spending in January and February (goods and services).

And as we’ve seen in retail spending, Americans spent like drunken sailors on goods, which surged 6.5% annual rate from the prior quarter, adjusted for inflation, with durable goods (such as new and used vehicles and other stuff) soaring by 16.9%!

Spending on services grew at a respectable but not breath-taking rate of 2.3%.

Government consumption and investment jumped by 4.7% (adjusted for inflation and annualized) to a new record, and the third quarter in a row of increases, after five quarters in a row of declines.

  • Federal government: +7.8%, with national defense +5.9% and Nondefense: +10.3%.
  • State and local governments: +2.9%.

Government consumption and investment does not include transfer payments and other direct payments to consumers (stimulus payments, unemployment payments, Social Security payments, etc.), which are counted in GDP when consumers and businesses spend or invest these payments from the government.

Gross private domestic investment plunged by 12.5% (adjusted for inflation, annualized), having now dropped in three of the past four quarters, having now worked of the pandemic spike.

  • Nonresidential fixed investments: +0.7%:
    • Structures: +11.2%.
    • Equipment: -7.3%.
    • Intellectual property products (software, movies, etc.): +3.8%.
  • Residential fixed investment: -4.2% after the 25.1% plunge in Q4.

The Trade Deficit (“net exports”) in goods & services improved – I mean, got a little less horrible:

  • Exports rose 4.8%, which adds to GDP
  • Imports rose also, but less than exports, +2.9%, which subtracts from GDP.

The catastrophic trade deficit during the pandemic was caused by consumers going on a historic stimulus-driven buying binge of goods, a lot of which were imported, or their components were imported. Some of this has now unwound, but the trade deficit (“net exports”) remains at horrible levels:

Change in private inventories subtracted 2.3 percentage points from GDP. Inventories remained flat in Q1 compared with Q4, but in Q4 inventories had surged, and the change of pace, from the surge in the prior quarter to no change, produced the big drag on the annual rate of GDP growth.

The chart shows total inventories in inflation adjusted dollars. The shortages are clearly in the past:

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  71 comments for “Consumers, Governments Spent like Drunken Sailors in Q1. Private Investment Plunge & Inventory Change Dogged GDP

  1. drg1234 says:

    Looks like more rate increases coming.

    • sufferinsucatash says:

      Powell is going to smack our hands as we reach for the plastic!

      “No! Bad American!” ;)

      • Leo says:

        Big Short Squeeze on the street today!

        From mainstream media: Meta shares are up 170% in five months despite virtually no revenue growth.

        Markets can remain unreasonable as long as there is Fed put in place 😉.

    • Jcohn says:

      Higher for longer

      • joedidee says:

        I am still seeing routine 20-30% increases
        why when I ask
        because suppliers can

    • Depth Charge says:

      Doubt it. Maybe one chintzy 25 basis point hike and done – or none and done. Jerome Powell works for the wealthy speculators. “Soft landing” = wealthy get to keep all the ill-gotten loot at the expense of the working class and poor, who will be completely destroyed by inflation.

      Everybody without assets is being slowly FED through a financial meat grinder so that the wealthy can own everything. The longer they allow inflation to run hot, the better the outcome for the wealthy. The tiniest wobble in anything brings the FED and .gov running to the rescue of the billionaires and hundred millionaires. This isn’t how you fight inflation, it’s how you encourage it.

      • jon says:

        I totally agree with DC on this.

        Piddly 25bps rate hike is coming and then a pause.
        Common people be damned.

        Still too much money in the economy.

      • dang says:

        So it would seem except when one considers that they are selling to the golden calf, us, who has to make enough income to sustain their revenue projections.

        Like life, the seeds of insurrection are always sown by the strongest tree.

  2. Logan Kane says:

    Thanks for helping us make sense of this! Always appreciated.

  3. Sammy says:

    Well then, I guess I’m the only idiot who opted to pay off his car loans and pay off his credit cards. And knocking another 3 months off my mortgage. My big spending “splurge” has on plants for my garden and grass seed for my lawn. What the heck was I thinking?

    • Wolf Richter says:

      Don’t despair! Every little thing counts.

    • Not Sure says:

      The last few years certainly taught me a lesson… To heck with financial responsibility and saving. When one’s government plays fast and loose with money, us responsible folks get crushed while the worst folks get handsomely rewarded. So I’m done with that. When (not if) the punch bowl comes back out to “solve” the next financial crisis, I would not want to be caught with my pants down busy clinging to my financial morals again. Taking on debt during an inflationary period where interest is still lower than inflation is actually an excellent idea! Get your shiny new toy now, and pay back later with inflated dollars.

      At least that’s what I tell myself. I’m sure I will still be busy fighting my conscience next time around too.

      • Seba says:

        ” Taking on debt during an inflationary period where interest is still lower than inflation is actually an excellent idea! Get your shiny new toy now, and pay back later with inflated dollars.”

        I thought maybe a lot of people are already on this train which is helping drive inflation further. Maybe I think that way because like yourself I try and be responsible with my money and just assume everyone around me is getting stuff by being irresponsible, but when Wolf releases CC debt charts and stuff it doesn’t actually look that way, unless I’m misreading the data it seems people just have money to spend. Then again this is still early in the game, I think inflation won’t be quashed very quickly, maybe more people will get the idea that buying now is better than waiting and start taking on debt to do it, as long as the labour market holds up and they can pay the higher interest anyway.

        • MM says:

          I am certainly on this train.

          Why should I pay back my 2.7% mortgage faster when I can stuff my cash into 5% CDs?

    • Flea says:

      Your smarter than 90% of population ,neither a borrower or lender be .Wise words

  4. JimBob says:

    “Consumer spending, which accounts for about 70% of GDP, surged by 3.7%, the biggest increase since 2021.”

    Is that because we are buying more, or just paying more for everything?

    • Zard says:

      YOLO and with all the helicopter money from our government coming to us, we have no choice but spend.

      Doesn’t matter if inflation or not, the streets, malls, and restaurants are pack-full of people. Things are looking to get tough but most don’t care.

    • Wolf Richter says:


      ALL THIS DATA IS ADJUSTED FOR INFLATION, as it says in the entire article everywhere, including right above where the line you cited came from, LOL

  5. Ken Miller says:

    Important observation here: “Government consumption and investment does not include transfer payments and other direct payments to consumers (stimulus payments, unemployment payments, Social Security payments, etc.), which are counted in GDP when consumers and businesses spend or invest these payments from the government.”

    Consumer spending is much less than the 70% noted above if one factors out deficit financed transfer payments. The federal government started running deficits a long time ago. What’s different today is that transfer payments are dramatically higher. A big part of the “consumer” GDP component today is deficit financed transfer payments.

    C+I+G+Nx = GDP is fundamentally different from say, 50 years ago, as the proportions of government spending are fundamentally different. Deficit spending used to finance direct government spending, like planes and guns and roads and such. Today, it finances transfer payments, which reflect as “consumer” GDP when spent. Deficit’s get laundered as consumer GDP.

  6. Ken Miller says:

    Clarification to the above; “..reflect as “consumer” GDP when spent on NEW goods and services. That’s most spending, but worth clarifying.

  7. Ralph Hiesey says:

    Just wondering– could this be dollars finally coming loose that the Fed dumped in between 2008-2015 –much of which went to buy shaky assets to prevent panic selling of such assets. Maybe stayed for a decade quietly as silent cash in the closet– at very low interest. Now being chased out with both sudden higher inflation and higher interest.

    Cash looking for higher interest new assets, and being spent to buy stuff during a sudden inflationary period, helping to boost inflation more? And if rates go up, that helping to push it out even faster?

  8. Flea says:

    Con – Sumer hit a brick wall ,just look at transportation index.Terrible numbers,grocery stores ,dead. My local grocery store ,self checkout monitor says shoplifting is a huge problem. But people just walk out no con- sequence by mid June SHTF ,Can’t sell 100,000$ pickups,all of a sudden automobile ads ,everywhere.This could get ugly

    • Wolf Richter says:

      Middle of the country? Just wondering. Doesn’t resemble anything I see.

      • Old Ghost says:

        I live in the middle of flyover country. It doesn’t resemble anything I see here, either.

        A small percentage of elite consumers may be having a good time with all the PPP money. But most aren’t enjoying the situation.

        • Depth Charge says:

          Yep. It’s all the asset holders and rich people with their “free” PPP money partying like it’s 1929. The rest can go pound sand. We’re not getting the real story. The wealthy have stolen the future of the young and they’re spending it wildly. It’s time to steal it back at any cost.

  9. old school says:

    I imagine somewhere there is a college graduate not paying their student loan yet getting a $7500 check to buy an EV. Pretty easy to drive demand with $1.5T budget deficit. Powell is going to keep going until demand slows.

  10. patrick says:

    fuel for the fire – anecdotal evidence of unrestrained spending – our house representative just roared through her district casting multi million dollar grants to multitudes of non-profits – on a private expenditure note my brother spent the month of april in orange beach – jammed packed – decided to go back to wisconsin by following the ms river north starting in baton rouge- got there no hotel rooms – headed up to natchtez no rooms – up to vicksburg no rooms – but found a $600 airbnd for one night ! its river of money out there !

  11. Sknarf says:

    I think this is the inflation mentality / expectation we have seen in other countries at other times, always with a sad ending; as the money becomes more and more worthless (prices for almost everything rises) people naturally defense themselves by spending the money as quickly as possible, especially for durable goods and inflation havens (see the deluge of ads on TV for gold and silver bullion – an inflation hedge?)
    JimBob (27-Apr) has an excellent question — I think you can guess my answer.

    • Escierto says:

      Gold and silver are inflation hedges? What a joke. If that were actually the case would gold be struggling to stay even close to $2000 and silver failing to hold $25? They are miserable inflation hedges because their price is suppressed and will stay suppressed for the foreseeable future. Of course the Russians and Chinese are loading up on gold like there is no tomorrow.

      • tolkapiam says:

        indian central bank same as china and russia always increasing their physical bullion inventory.According to WGC data, the Reserve Banj of India bought three tonnes of gold in the month of February, taking India’s total gold reserves to 790.2 tonnes. India now holds 8 percent of the world’s gold reserves. Not to mention india;s public of 140 billion holds 22k carat gold ornaments atleast ten times the horde of central bank.

  12. Xavier Caveat says:

    Sailors don’t really make that much and if they’re drunk its difficult to spend money, more likely to pass out somewhere.

    • 91B20 1stCav (AUS) says:

      XC – mebbe ‘…rolled like a drunken sailor…’ is more correct (“…and there goes Jack Tarr, the poor sailor, who must go to sea once more…”)???

      may we all find a better day.

  13. R2D2 says:

    This says to me that the US consumer and US govt have stopped listening to Wall Street.

    The airwaves are filled every day with apocalyptic hysteria of doom, misery, impending economic collapse.

    And the American consumer takes absolutely no notice!

    • Augarbage says:

      They will once job losses start in earnest. In fact this spending bonanza will multiply until the labor market begins contracting. Until then, nothing will change. That’s the missing piece of this entire equation.

      Look at the market today, still struggling to see what is prompting the surge. I don’t even think fundamentals come back to this market either until the labor market contracts as well.

      I actually don’t really know much of anything anymore with what I was told with finance and the current paradigm we are in, Certainly a head scratcher.

    • CCCB says:

      Maybe the little guy consumer is right this time around and Wall Street and all their shills (WSJ, Barrons, Bloomberg, MSNBC, etc.) are wrong. They’ve been wrong a lot lately.

      I know my states of Florida and Texas are more similar to foreign countries than just big states, but absolutely NOTHING has slowed down in either one, not even real estate prices, except where they went up 200-300% over the past 10 years.

  14. rojogrande says:

    I’m glad reporting on Wolf Street manages to keep up with all the drunken sailors running around. Thanks!

  15. RobertM700 says:

    15% of the world population consuming 90% of the goods. Are we happy yet?

    • 91B20 1stCav (AUS) says:

      “…but, but, the world’s fine with that because they love embracing our ‘excepionality’!…”.

      may we all find a better day.

  16. Depth Charge says:

    Just look at the FED’s balance sheet for a real laugh. Total scam.

    • Einhal says:

      Yup. In the past week, they ran off a measly $30 billion out of $8.6 trillion.

    • Wolf Richter says:

      Dropped another $30 billion today, getting hammered down now every week. And it wasn’t even Treasury roll-off day. Article coming.

      • Concerned_guy says:

        4 week t bills yields jumped today, any relation to Feb BS getting dropped by $30B today?

        • SpecOps says:

          I believe it has to do with buyers not wanting to run the risk of buying May 4 week T bills and not get paid on time if the debt ceiling isn’t raised before June.

        • Wolf Richter says:

          I don’t think so. The 1-month yield has gone completely crazy.

  17. Jackson Y says:

    It’s easy to understand why Wall Street bulls are so giddy.

    If rates stay high, that means the economy is still holding up strong.

    If the economy goes into recession, rate cuts are coming.

    Win-win situation.

  18. ru82 says:

    Tech earnings are pretty good. It looks like the selloff last year because of rising interest rates did not effect their bottom line like everyone thought.

    Microsoft, Meta, Amazon had great reports. I bet Apple will too.

    In flyover, it looks like housing is on the rise again….at least for the past couple of moths.

    But what I see know and was in a chart Wolf posted a couple of days ago on the CPI rent equivalent. It has not kept up with house prices. If you are planning on buying a home to rent, the CAP is much lower than 3 or more years ago. The few deals I looked at, the CAP rate is going to be around the treasury rates. One might as well buy treasuries or a money market fund than buy real estate. Ether house prices need to drop 15% or rents need to go up another 15% to make owning a rental an attractive investment.

    • Einhal says:

      I don’t know if Microsoft, Meta, and Amazon did have great reports, as I didn’t read them in detail. What I do know is that “beating” expectations means nothing, as Wall Street intentionally sets them low so they can be “beat.” When 80% of earnings reports are “beats,” quarter after quarter, year after year, you start to wonder why anyone pays attention anymore.

      • butters says:

        By any means they are not great. What they are doing is beating the “lowered” expectations. Just look at the PE ratio. Since none of these matters, or as a matter fact, nothing matters to stonks atm.

        • butters says:

          I will posit that, the higher the rate hikes next week, they higher the stonks will be.

        • Captainpeacock says:

          Msft at 11 price to sales is a steal! Just look at what Scott McNeely said about sun micro at 10x sales in the tech bubble…this will end the same way in tears.

      • butters says:

        Revenue are more or less same, but stonks must go high. It’s in the constitution.

    • Pea Sea says:

      “In flyover, it looks like housing is on the rise again….at least for the past couple of months”

      And on the west coast as well. FOMO idiots and brrrrrrrrr beneficiaries alike are competing for nearly nonexistent inventory, and the resulting price rises will show up in the data in the next few months.

  19. Captainpeacock says:

    Amazon just crushed earnings across the board and raised for next quarter! Clearly consumers are in great shape and spending. I’m starting to believe in the no landing theory.

    • Einhal says:

      Of course there’s no landing. The money consumers have to spend is based on the amount of total money out there. The Fed printed $5 trillion from March 2020, and has made no real effort to remove that money from circulation. Of the $5 trillion printed, they’ve removed $400 billion, about 8%. Whoop de do! That’s why inflation is continuing unabated and housing prices refuse to correct.

      • 8_mile_road says:

        That’s why I don’t believe the official CPI index. Uncle Sam can present the CPI however they want, but I only trust my bank account, and my expense trackers. I usually buy the same brands of groceries, and visit the same restaurants over years, so my bills don’t lie.

        In today’s world, the best way to reduce inflation is reducing consumption. I read a news saying the flight prices for this summer is skyrocketing (Wolf, you mentioned flight price increased 26.5% YoY, right?)

        So, this summer I am either staying home, or take a day-trip without flying and living in hotels.

        One day, when American MUST cut their consumption because they max out their credits, or a massive layoff occur, then we can discuss about dis-inflation.

        I don’t see the consumption cut happening…….yet.

        • Flea says:

          Everyone will claim bankruptcy on cc ,it’s so easy,but why not corporations are pros at it .We need to change laws quickly . Everyone should be accountable for bad decisions ,even bank executives,CEOs used to go to jail for blatant fraud,now they just payoff potus,congress,And scotus .Chaos coming soon

      • Occam says:

        Einhal states the obvious about the effects of the COVID five trillion dollar helicopter money drop; except it’s not obvious to the Fed, which doesn’t believe that the quantity of money affects demand or inflation. Well, when the Fed raises 25 basis points and says “we’re done” in May with a looming two trillion dollar deficit on the fiscal side, the big party that’s already going on will really take off and FOMO will kick stocks into high gear again. One would think that, after the Fed looked so foolish with its “transitory inflation” policy error, it would be more concerned about what it and Congress have ignited. Paul Volcker is dead and he’s not going to be resurrected; William Miller must be the Fed Chair Powell wants to emulate, on the theory that voters and politicians don’t have the stomach for high real interest rates this time around.

    • butters says:

      “raised for next quarter”

      Ha ha

      It will be lowered 3 times before the next earnings.

  20. Tom S. says:

    Looks like a train right to full blown stagflation.

    • butters says:

      Powell lowers rate, lowers aggressively
      Raises rate, raises again, but very slowly
      Inflation first, then stagflation blooms

  21. harry hv says:

    It’s perfectly logical to spend as much as possible as soon as possible if prices are going up faster than whatever after-tax-interest you might earn by delaying purchases.

  22. grimp says:

    Seems more and more like the FED rolled out a 55gallon drum of punch, but is using the “playbook” that might quickly remove a 1 gallon punchbowl. All while becoming a punchline if that prankster report is correct.

  23. Digger Dave says:

    Many of us are forgetting that unchecked inflation destroys governments. The Fed has no choice but to keep rates high and slowly continue to raise them as long as it takes. The more proportional wealth that accrues to those at the top, the harder it gets for the bottom. This is how revolutions start and governments topple. The Fed, Congress and their cronies may work for the rich, but if their choice is preserving less wealth versus allowing inflation to run wild, they’re going to do what’s in their best interests.

  24. Buy the Dip says:

    March 2020 denotes the start greatest creation of wealth in US history in the shortest period of time. Yes you had some that played it safe, but there are those who took unprecedented risk in crypto, meme stocks, and the general market. Truth be told they made money. There is also the great wealth transfer taking place behind the scenes among families. Too Big to Fail, 2008 has come and gone…there is no recession coming, only Wall St. Bankers and Ponzi scheme artist who got over leveraged and exposed. Slap on the risk, Fed steps in to save the day. We are Greatest show on Earth.

    • Wolf Richter says:

      The result of all this money printing is the biggest inflation in 40 years, and this inflation is now chewing up this “wealth” that money-printing printed.

    • dang says:

      I agree with the gist of what your saying. Except when you suggested that The week of knee, while paying for the party, shouldn’t complain.

      Those that took unprecedented risk should be allowed to fail, as well as win. The world is infested with your kind of libertarian, winner crowing about how natural it was that you won.

  25. dang says:

    I have become frustrated by the controlled implosion of the multitude of micro bubbles, for sure. One doesn’t like to hope that their darkest projections come true because that’s what was uttered from one’s mouth ?

    At this point, I think, the Fed will appropriately raise the FFR by 25 bps and should discuss the uncertainty that inflation is under control and the that interest rate are still substantially negative which means inflation is out of control.

    Because inflation is not under control, the last thing Powell should suggest is a pause and if he’s smart an above average probability of a similar increase at the next meeting, which I think is in mid-July.

    • Jon W says:

      My guess is that the fed plan is to hope that as the Ukraine price surge from a year ago washes out of the annualised headline figure, consumers see inflation falling quickly and believe it’s all under control and calm down.

      Come autumn, when the surge is gone, inflation will flatline and start ticking back up to the underlying core rate (around 5-6%). Fed will then shock and awe another rate rise to make it look like they are ready to go volker on the thing.

      I think this is really risky though. It plays on the difficulty the public has understanding an annualised rate of change figure. If people still see prices rising (especially of things they need – like food) but are told inflation is now magically back at 3% they will get suspicious, and IMHO a lot of our current problem is that the fed has already destroyed its credibility so much.

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