First-Quarter U.S. GDP -- At A Glance

Déjà Vu All Over Again

The first quarter’s 0.5% growth rate was the weakest quarter for GDP since the first quarter of 2014, when the economy contracted at a 0.9% pace. The slowdown could send up a warning flare about the U.S. economy, which has struggled to gain sustained momentum since the 2007-09 recession. On the other hand, a weak first-quarter GDP report has become routine in recent years. In 2010 through 2015, first-quarter GDP growth averaged just 0.8% compared with 3.1% for the second quarter, 2.2% in the third quarter and 2.4% for the fourth quarter. The Commerce Department took steps last year to try to address the issue known as residual seasonality, which may still be distorting the quarterly statistics.

Business Misadventures

Business investment posted its worst performance since the tail end of the last recession, weighing on broader economic growth. Fixed nonresidential investment declined at a 5.9% pace in the first quarter, the sharpest drop since the second quarter of 2009, and subtracted 0.76 percentage point from the overall GDP growth rate. Spending on equipment dropped at an 8.6% pace and spending on structures fell at a 10.7% rate. But spending on intellectual-property products, such as software, picked up at a 1.7% pace.

Cautious Consumers

Consumer spending generates more than two-thirds of U.S. economic activity. Household outlays continued to decelerate in the first three months of 2016, rising at a 1.9% pace compared with 2.4% in the fourth quarter. Spending on goods stalled, rising at a mere 0.1% pace. Service-spending growth was fairly steady from the fourth quarter and rose at a 2.7% rate.

Trading in the Red

Foreign trade has been a headwind for economic growth as overseas weakness and a strong dollar have depressed demand for U.S. exports. Net exports subtracted 0.34 percentage point from the first quarter’s growth rate, the seventh time in the past nine quarters that trade was a drag on overall GDP growth. The trade gap widened as exports dropped at a 2.6% annual rate from the fourth quarter while imports climbed at a 0.2% pace.

Housing Help

The housing sector offered some much-needed support for the economy in the first quarter, with fixed residential investment rising at a 14.8% pace—its strongest growth since the fourth quarter of 2012. Residential investment helped prevent the economy from contracting in early 2016, contributing 0.49 percentage point to the quarter’s 0.5% growth rate.