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As The US Economy Stepped Back, The US Consumer Stepped Up

One of the more widely discussed data points last week will likely be one of the more widely discussed data points this week. That is, per the Bureau of Economic Analysis, the US GDP shrank by 1.4% on a real or inflation-adjusted basis in the first quarter—the first time the economy has contracted since early in the pandemic.

While we are disappointed in the performance of the US economy in the first quarter, we are not that concerned that the negative GDP print portends greater economic weakness to come. Our sanguine view of things is driven by what got us, for lack of a better term, to that negative 1.4% GDP print. Specifically, trade knocked more than three points off the GDP in the quarter as real imports surged 17% quarter to quarter. By way of background, a trade deficit detracts from the GDP, and a trade surplus adds to the GDP as the basic formula for calculating GDP is Consumption + Government Spending + Investment + Net Exports. As our economy has bounced back faster and stronger than most – and we typically run a trade deficit anyway – it isn’t surprising to see trade knock the GDP by such a meaningful amount. It is also worth noting that imports should normalize, and trade should be less of a headwind going forward. The other number worth calling out is that consumer spending rose 2.7% in the quarter—a very strong showing and a very important data point considering the US consumer (or Consumption) accounts for about 70% of GDP.

Finally, within consumer spending, we saw spending on services jump by more than 4%, while spending on goods fell by 0.1%. When the economy shut down in early 2020, spending across the board plunged, then spending on durable goods spiked and spending on services remained below trend as everyone bought a Peloton but no one could get a haircut (see chart). Now, as the economy reopens, we are seeing spending on services accelerate. And considering that household purchases of services represent the majority of personal consumption expenditures, that should be good news for the economy through 2022.


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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 0758-BCI-5/2/2022

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