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First Quarter GDP Report Packs a Surprise

The unexpectedly robust first quarter

gross domestic product (GDP) growth, which was reported at 2.0%, was due to a surprising display of strength in the otherwise weak computer and software sector. This came alongside more conventional upside surprises in the net export and government purchase components.

Real equipment and software spending "only" contracted at a 2.1% rate in Q1, versus the more substantial 14% pace of contraction we had expected given weak figures in the durable and factory reports. The chain price index for this sector did fall by an unusually large 3.8%, but this explained only a smidgen of the strength in the "real" figures relative to the nominal monthly data. Net exports added a surprisingly large $36.8 billion in Q1, as exports contracted by a smaller than expected 2.2% in Q1, while imports dropped by a larger than expected 10.4%. Government purchases grew at a 4.0% rate, which also outpaced expectations. Consumption fell short of expectations with a 3.1% growth rate, while inventories removed a hefty $62.8 bln from growth.

Note that the chain price index posted the expected 3.2% Q1 gain, with a 3.3% gain in consumption prices. From Standard & Poor's Global Markets

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