First quarter U.S. GDP growth revised downward to 2.2%, expectations remain robust

The U.S. economy advanced at a modest 2.2% in the first quarter of 2018 as expectations for sustained growth in 2018 have not lived up to Wall Street expectations.

According to the “second” estimate released Wednesday (May 30) by the Bureau of Economic Analysis (BEA), real U.S. gross domestic product was revised down one-tenth of a percentage point from the earlier 2.3% due to contractions in private investment, home purchases and U.S. exports.

A consensus of Wall Street economists had forecasted first quarter GDP growth of 2.3%, according to a monthly survey by the Wall Street Journal. The BEA’s second GDP reading, which measures the value of goods and services produced by the nation’s economy less the value of the goods and services used up in production, is based on more complete source data than were available for the “advance” estimate issued last month.

The weaker-than-expected first quarter GDP growth is surprising given that earlier forecasts for three-month period rose as high as 5.4% on the belief by some economists that the 2017 Tax Cuts and Jobs Act would propel the world’s largest economy forward.

But many forecasters are already looking ahead to better second quarter and yearly growth expectations, hoping that strong consumer spending, the Trump tax overhaul and the nation’s improving job market will help fulfill earlier predictions nearing 3% annual GDP expansion.

“Consumers’ assessment of current conditions increased to a 17-year high suggesting that the level of economic growth in Q2 is likely to have improved from Q1,” said Lynn France, director of economic indicators for the Conference Board.

On Monday, the independent business research group noted that U.S. consumer confidence in May had increased to 128 following a slight decline to 125.6 in April.

“Consumers’ short-term expectations improved modestly, suggesting that the pace of growth over the coming months is not likely to gain any significant momentum. Overall, confidence levels remain at historically strong levels and should continue to support solid consumer spending in the near-term,” said the Conference Board economist.

In addition, ADP’s National Employment Report shows that private sector job growth increased by 178,000 between April and May. Signals from that closely-watched job snapshot shows the nation’s job market is cooling ahead of Friday’s national unemployment picture from the U.S. Labor Department.

“Job growth is strong, but slowing, as businesses are unable to fill a record number of open positions,” said Mark Zandi, chief economist at Moody’s Analytics. “Wage growth is accelerating in response, most notably for young, new entrants and those changing jobs. Finding workers is increasingly becoming businesses number one problem.”

A month ago, the nation’s unemployment rate fell below 4% for the first time since the waning days of former President Bill Clinton’s administration nearly 20 years ago. The nation’s jobless is now at a tidy 3.9%, although rising weekly unemployment claims could impact that number in May, analysts say.

Overall, key highlights from the BEA’s second reading show for the first quarter show that real gross domestic income (GDI) increased 2.8% in the first quarter, compared with an increase of only 1% (revised) in the fourth quarter. Current-dollar GDP increased 4.2%, or $202.7 billion, in the first quarter to a level of $19.96 trillion. In the fourth quarter, current-dollar GDP increased 5.3%, or $253.5 billion. The price index for gross domestic purchases, which includes food and rising energy prices, increased 2.7% in the first quarter, compared with an increase of 2.5% in the fourth quarter.

The Atlanta Fed’s GDPNow forecast for U.S. economic growth in the second quarter is 4%, down from 4.1% a week earlier. After increasing from 3.3% to 5.4% following last week’s reports on new-home sales and costs from the U.S. Census Bureau, second-quarter real residential investment growth fell back down to 1.1% following Thursday’s existing-home sales release from the National Association of Realtors.

The BEA will release its “third” and final GDP estimate for the first quarter on June 28.