The US Economy Had a Strong First Quarter — but Not Because Shoppers Were Spending More

U.S. GDP growth easily topped expectations at an annual rate of 3.2% for the first quarter, the Commerce Department reported Friday. At first glance, this should be great news for retailers — but the gains didn’t come from an uptick in consumer spending.

In fact, personal consumption expenditures grew only 1.2% for the quarter, following three straight quarters of 2.5% growth or higher. Spending on nondurable goods — a category that includes footwear along with clothing, food and cosmetics — fell 5.3%, the biggest drop since 2009.

The rates are a first estimate and may be revised as more data is collected over the coming weeks, but the growth drivers behind the current figure were an increase in business inventories (meaning companies stockpiled more unsold merchandise in the first months of the year), a smaller trade deficit and stronger government spending at the state and local levels.

Economists had been expecting a growth rate of 2.1% for the quarter, and some cheered the substantial beat, but others cautioned that slowing consumer spending and business investment could indicate a less buoyant economy ahead, particularly as the effects of the Trump administration’s 2017 tax cuts are beginning to wear off.

March’s retail sales numbers do paint a more optimistic picture, though: After several disappointing months, retail sales surged a seasonally adjusted 1.6% from February, with clothing and accessories stores posting the biggest gains of any retail category, excluding auto and gas. If the momentum keeps up, the economy could see a boost in consumption in the second quarter.

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