US GDP misses expectations, prints 2.2%

The world's largest economy grew at a slightly slower pace than expected in the first quarter at 2.2 percent q/q annualised vs. 2.5 percent expected while 4Q'11 was unchanged at 3 percent. Despite the miss on the headline number, when we dig deeper into the numbers the overall report looks better.

• GDP up 2.2% vs. 2.5% expected and 3% prior. (GDP accelerates to 2.1% y/y from 1.6%.)
• Personal Consumption Expenditures (PCE) are up 2.9% vs. 2.3% expected and 2.1%.
• Fixed Investments are up 1.4% vs. 6.3% prior.
• Government Purchases are down 3% vs. -4.2% prior.
• Exports rise 5.4% vs. 2.7% prior.
• Imports rise 4.3% vs. 3.7% prior.
• GDP Price Index up 1.5% vs. 2.1% expected and 0.9% prior.
• Core PCE Price Index up 2.1% as expected and 1.3% prior.
• Employment Cost Index up 0.4% vs. 0.5% expected and 0.5% prior. No margin pressure evidence here!

So why is the report perhaps better than the 2.2 percent growth rate suggests? First of all, the consumer was in quite a good mood in the first quarter contributing no less than 2 percentage points to growth up from 1.5 pp a quarter earlier with most coming from durables (+1.1pp). Nevertheless, we do worry about the savings rate and need to get personal income growing at a fast pace (next report on income due Monday). Secondly, inventories did not lead the troops the same way they did in 4Q'11 when they added 1.8pp. This time it is only 0.6pp - or a cut in the contribution of two-thirds. Thirdly, the government continues to subtract from growth (this time -0.7pp. vs. -0.8pp prior) and yet the economy is resilient enough to produce growth above 2 percent y/y. The foreign trade part of the report was rather underwhelming, however, with the contributions from exports and imports cancelling each other out.

All in all, we believe it is a rather good report, which may not be reflected in the headline 2.2 percent growth rate. Having said that, we continue to expect 2 percent for the entire year and see a potential for a weaker second quarter before improvements in the second half of the year.