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Economy in Brief

US GDP Growth Back on Track in 1Q
by Tom Moeller April 28, 2006

US real growth during 1Q06 rebounded smartly to 4.8% (AR) from a lull the prior quarter at 1.7%, but the two quarter average of growth at 3.2% was somewhat depressed from the 3.9% quarterly average of 2004 & 2005. The 1Q increase about matched Consensus expectations for a 5.0% increase while the widespread forecast is for 3.5% growth this quarter.

Personal consumption expenditures bounced back to a 5.5% (3.4% y/y) rate of growth from the 0.9% 4Q pause. Motor vehicles & parts consumption grew 19.8% (-4.5% y/y) but that only recovered half of the prior period's slump. Furniture & household equipment spending continued strong with a 23.3% (13.3% y/y) rate of growthand apparel spending also advanced a firm 7.8% (7.1% y/y).

Defense spending recovered all of its 4Q slump with a 10.3% (3.5% y/y) advance and that contributed 0.5% percentage points to 1Q GDP growth.

Growth in business fixed investment nearly doubled the already strong 4Q rate of growth with a 17.9% (12.1% y/y) advance. Much of the acceleration owed to a 10.8% (8.1% y/y) rise in information processing equipment & software which more than doubled the prior quarter's rate of advance. Industrial equipment, however, again was strong with a 12.2% (6.9% y/y) increase and investment in transportation equipment jumped 45.0% (15.0% y/y). That more than recouped a 4Q decline. Structures spending again was quite firm and registered 22.3% (19.5% y/y) growth.

Business Capital Spending, a speech by Federal Reserve Board Governor Donald L. Kohn yesterday to the Forecasters Club of New York, can be found here.

A wider foreign trade deficit subtracted another 0.8 percentage points from GDP growth last quarter as a 12.1% (7.5% y/y) advance in exports was outpaced by 13.0% (6.6% y/y) growth in imports.

Inventories reversed a piece of the prior quarter's positive contribution to GDP growth with a 0.5% subtraction.

The GDP chain price index remained firm and grew 3.3%. Strength again owed much to the price index for the government sector which advanced 5.0% (5.2% y/y). The PCE chain price index rose a moderate 2.0% (3.0% y/y) and the price index for business equipment & software was unchanged (-0.9% y/y) following several quarters of decline.

The latest Beige Book from The Federal Reserve Board covering economic activity in the twelve Federal Reserve Districts can be found here.

Chained 2000$, % AR 1Q '06 4Q '05 Y/Y 2005 2004 2003
GDP 4.8% 1.7% 3.5% 3.5% 4.2% 2.7%
  Inventory Effect -0.5% 1.9% -0.3% -0.3% 0.3% 0.0%
Final Sales 5.4% -0.2% 3.8% 3.8% 3.9% 2.7%
  Foreign Trade Effect -0.8% -1.4% 0.1% -0.1% -0.5% -0.3%
Domestic Final Demand 5.9% 1.1% 3.9% 3.9% 4.4% 3.0%
Chained GDP Price Index 3.3% 3.5% 3.2% 2.8% 2.6% 2.0%
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