The economy’s slowing. That’s old news. What’s fresh is the revelation that the pace of downshifting is quite a bit steeper than some have been expecting.
The government this morning advised that first quarter GDP grew by a meager 1.3%, based on an annualized real pace. That’s sobering for a number of reasons, starting with the fact that it’s materially below the fourth quarter’s 2.5% rate. In fact, 1.3% is below every quarterly GDP change since the first quarter of 2003. Meanwhile, the consensus forecast called for something much higher today, at roughly 2.0%, according to TheStreet.com.
Judging by recent history, when GDP’s pace falls this low, it’s not a good sign about the future. Akin to a plane with a stalled engine, there’s a risk that the momentum may stall. It’s not fate, but only a fool would ignore the danger.
Yes, today’s GDP report is the first of three estimates on the nation’s economy, offering the possibility that subsequent updates may revise the growth rate upward. But let’s not gloss over the fact that consumer spending–the single-large factor in the economy–is showing signs of age in the latest quarterly profile. Although personal consumption expenditures (PCE) rose by 3.8% in the first quarter, that’s down from 4.2% previously. That’s hardly a problem, but the question is whether Joe Sixpack is now inclined to slow his pace of spending? For the moment, erring on the side of caution seems reasonable, at least from an investing perspective.