GDP Unexpectedly Increases

The economic growth rate in the U.S. was reported to be an unexpectedly strong 2% in the first quarter of the year, as reported today by the Commerce Department. GDP growth had fallen to 1% at the end of last year and was widely expected to be in the 0-1% range at the beginning of this year.

The report confirms what carriers had already reported about the first quarter. Production and freight were sluggish while manufacturers and distributors pared their inventory. Inventories fell by $7 billion after several years of rising $50-60 billion a quarter.
Consumer spending grew at a 3.1 % annual rate after inflation. This was almost the average for the past decade, while only about 60% of what is thought to be today’s long-term sustainable rate. Much of the growth in consumer spending was an unsustainable surge in spending for new cars and trucks. These purchases produce very little dry van freight. Consumer spending is likely to be more balanced over the rest of the year.
The first quarter’s weak sectors were high tech, industrial equipment, software and imports (down at a 10% rate). Transportation equipment, construction and energy were the strong sectors.
Looking ahead, the GDP news means the Federal Reserve Board is now less likely to cut interest rates again for fear of restarting inflation. The economic growth outlook for the current quarter is still clouded, with estimates ranging from a small decline to over 2%. This uncertainty is due to the difficulty of timing large changes in inventory levels and foreign trade in manufactured components and goods. Nonetheless, expect production and freight to gradually expand over the spring quarter and into the summer, however the economic accounting is assigned to the spring and summer quarters.