The second release of Q1 GDP was unchanged at 1.8%, weaker than the consensus expectation for an upward revision to 2.2%. The main surprise was an unexpected downward revision to Q1 consumption spending, which was lowered to 2.2% (consensus 2.8%) from 2.7%. Weaker consumption was offset by an upward revision to inventories, which added 1.2ppts to Q1 GDP, or 0.3ppts more than previously reported. For Q2, we now expect growth of 3.1%.
The main surprise in today’s Q1 GDP report was an unexpected downward revision to consumer spending from 2.2% from 2.7%. Ironically, the consensus had originally expected Q1 consumption growth of 2.0% prior to the initial GDP release at the end of April. Nonetheless, today’s release now shows less momentum in demand than previously reported.
Looking forward to Q2, consumption growth is expected to stay moderate at 2.3% and the contribution from inventories may turn slightly negative. However, federal defense spending is expected to rebound from an unusually steep drop in Q1. This leaves us with an overall projection of 3.1% for Q2 GDP growth.
Bottom Line: Softer consumption was offset by an upward revision to inventories, leaving Q1 GDP unchanged at 1.8%. We now expect Q2 GDP growth at 3.1%.
HSBC Global Research