Q1 GDP Growth Comes in Under Expectations

Article originally posted on Globe St. on April 27, 2023

The first quarter of 2023 was a disappointment by broad economic measures. The consensus 2% real GDP growth expected by economists polled by Dow Jones instead was 1.1%, according to the Bureau of Economic Analysis.

That’s also the second consecutive quarter of declining growth, from 3.2% in the third quarter of 2022, to 2.6% in the fourth quarter of last year. However, the slowing is not the same as a contraction. According to the rough rule of thumb, a recession likely hasn’t started as of yet. Then again, the picture going forward is far from clear.

The devil, or maybe the angel, is in the details. On the positive side was personal consumption expenditures, which drive much of GDP. That went from the 1.0% of last year’s Q4 to 3.7% in Q1 of 2023 (though remember that this is the first estimate; all the first quarter numbers could change).

“In short, the U.S. consumer appears to be unstoppable and very well could keep the U.S. out of recession in 2023, even though we are projecting a downturn sometime this year,” Carlos Vaz, CEO of CONTI Capital Multifamily Real Estate, said in an email. “Because of the tight labor market and the continued propensity of consumers to spend, our forecasts indicate that any such downturn would be relatively short and shallow compared to previous contractions.”

“GDP growth cooled after the 2.6% expansion in Q4 2022, though the report doesn’t offer a clear update on the health of the economy since the data are tainted by a weather-related boost to consumer spending and quirky seasonal adjustment factors,” said an emailed statement from Oxford Economics. “Also, credit conditions will be much tighter for the remainder of the year.”

The firm also noted that a shift in inventories “posed a large 2.3ppts drag on GDP growth in Q1” but that “the core of the economy was stronger than the headline GDP print indicates as real final sales to domestic purchasers – our preferred measure of underlying economic momentum – rose a solid 2.9%.”

On a more specific CRE angle, growth in nonresidential structures was 11.2%, which sounds good but was down from the previous quarter’s 15.8%. Residential structure growth was -4.2%, but that’s a significant improvement over last quarter’s -25.1%.

And the latest jobless unemployment claims data aren’t chipper, according to Nationwide Economist Scott Murray, who said, “Claims data shows a crack in the impressive engine of job growth since the end of the lockdown. The expectation of economic weakness means the cracks should grow.”

Nothing absolutely definite one way or the other, but a sense that wariness might be a good idea.