Economy Watch: GDP Sluggish in the First Quarter

The BEA reported that U.S. GDP increased just 0.5 percent in 1Q 2016, largely due to a decline in nonresidential fixed investment and a decline in consumer spending.
Credit: U.S. Bureau of Economic Analysis
Credit: U.S. Bureau of Economic Analysis

Real gross domestic product—which is adjusted for price changes—increased at an annualized rate of just 0.5 percent in the first quarter of 2016, according to the “advance” (or first) estimate released by the Bureau of Economic Analysis on Thursday. In the fourth quarter, real GDP increased 1.4 percent.

That rate of growth, of course, is anemic, and not particularly good news for commercial real estate, demand for which is linked to overall economic growth. Still, it’s very likely that the growth rate will be revised upward over the next month as more data comes in. That’s the typical pattern.

The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures (PCE, or consumers out consuming), residential fixed investment, and state and local government spending.

The deceleration in real GDP in the first quarter reflected a larger decrease in nonresidential fixed investment (much of that is commercial properties, but not all), a deceleration in PCE, a downturn in federal government spending, an upturn in imports, and larger decreases in private inventory investment and in exports, according to the BEA.