Q1 GDP Commentary from MBA's Joel Kan

The following is MBA VP and Deputy Chief Economist Joel Kan’s reaction to this morning’s U.S. Commerce Department report on Q1 GDP:

--

“First-quarter GDP data indicated that the economy was still in growth mode, albeit at a slower rate. The economy grew at a pace of 1.1 percent – the weakest in three quarters – but was driven by consumer spending, business investment, and government spending. Consumer spending continued to prop up overall growth, as spending on goods registered growth after four quarters of declines, and spending on services also increased relative to the previous quarter. Drags to growth came mainly from declining inventory investment and residential fixed investment. Residential investment has shown eight quarters of declines but has improved over the past two quarters. We expect a recovery in that sector to occur later in the year as purchase conditions improve.  

“Continuing growth in the economy, coupled with a strong job market and inflation that is still too high – the first quarter PCE index showed 4 percent growth, double the Fed’s target – will likely lead the Fed to raise the Fed Funds Rate one more time at its next meeting, even as credit conditions tighten due to challenges and uncertainty in the banking sector. They are expected to then hold the funds rate at this higher level at least through the end of 2023.

“We forecast a short recession in the coming quarters, as these tighter financial conditions exert a drag on consumer and business activity through tighter lending conditions and higher rates. This will cause the unemployment rate to rise and gradually lower inflation closer to the Fed’s 2 percent target by the end of 2024.”