US: Q1 GDP details were much stronger than what the headline suggests – TD Securities

The US economy contracted at an annualized rate of 1.4% during the first quarter, data showed on Thursday. According to analysts from TD Securities, GDP growth was impacted by large setbacks in net exports and inventories. They point out that the details of the report were actually much stronger than the headline suggests.

Key Quotes: 

“Real GDP fell by a notable 1.4% q/q AR in Q1, below the +1.0% consensus and our 0.0% estimate. This is the economy's first contraction since COVID first impacted output in Q2 2020 and follows a robust, inventory-led 6.9% q/q AR expansion in Q4.”

“GDP contracted in Q1, but the details were actually much stronger than the headline suggests. Final sales to private domestic purchasers (a better gauge for domestic demand) actually rose to a robust 3.7% q/q AR pace after rising 2.6% and 1.4% in Q4 and Q3 2021, respectively. This supports our view of a rebound in Q2 output as inventory rebuilding normalizes and imports become less of a drag amid still strong domestic demand.”

“We forecast a 1.9% Q4/Q4 pace in 2022, down from 5.5% in 2021, with 3% in Q2, 1.9% in Q3 and 2% in Q4. We expect core PCE inflation to slow as well, with the y/y change in core PCE prices down to 4.1% in 22Q4.”