Dr. Christoph Balz, Senior Economist at Commerzbank, offers his views on the Advance US GDP report released this Thursday, which showed that growth in the world's largest economy decelerated to a 1.1% annualized pace during the first quarter.

Key quotes:

“Private consumption, which accounts for two-thirds of GDP, still grew by 3.7% in the first quarter. Households benefited from the continued strength of the labor market as well as special effects such as the social security increase and income tax relief as the tax code was adjusted for inflation. Disposable income increased by a strong 12.5% in Q1.”

“It is striking that housing construction, after seven sharp negative quarters (most recently -25%), is showing signs of stabilization with a comparatively small decline of 4.2%. Home builders have obviously now largely adjusted to the higher level of mortgage rates.”

“Stronger GDP growth was prevented by companies restocking their inventories much less than before. This in fact depressed the GDP growth rate by a whopping 2.3 percentage points. This effect should not be repeated in the current quarter.”

“Measured against the difficult environment, the US economy has thus still held up reasonably well at the beginning of 2023. We still expect it to contract slightly in the second half of the year. This is because the full impact of the Fed's interest rate hikes will probably not be felt until then due to the usual lags. It also fits in with this that growth in the first quarter was mainly based on very good January figures. The data for February and March were already weaker. In addition, a number of survey-based indicators such as the ISM purchasing managers' indices are pointing clearly downward.”