WASHINGTON, DC–The Commerce Department released disappointing first quarter GDP figures this morning: The US economy posted an anemic growth rate of 0.7%, the weakest since the first quarter of 2014 and a sharp decline from the 2.1% recorded in Q4 of 2016.

Analysts say weak consumer spending (which registered 0.3%, below the 3.5% rate in the previous quarter) and cuts in defense spending were some of the reasons behind the slower-than-expected growth — the rate was lower than the 0.9% Wall Street had been expecting, even after multiple downward revisions throughout the first quarter, according to First Franklin Financial Services.

First Franklin did say that it was surprised at the pickup in business investment despite the uncertainty in the future of business policies that the Trump administration is targeting. “That's a great sign because if the environment improves, which we think it will, more investment will follow,” it said in a note.

Unfortunately, the strength seen in the business investment segment, as well as the housing portion of the report, did not offset the weak retail sales.

That said, everything continues to point to continued acceleration in wage growth, as Q1's sluggish growth rate is more likely a pause than a continued slowdown, First Franklin said. “We believe this also gives the Fed the green light to continue hiking rates and odds should rise to a near certainty for June. They simply cannot hold off into such strong labor numbers.”

First Franklin's bottom line interpretation of the numbers:

We believe this could be an inflection point for the economy as business costs are rising as they fight for labor in an extremely tight labor market. But it remains to be seen if higher wages and compensation will eventually run through the economy and lead to higher spending.

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Unfortunately, the strength seen in the business investment segment, as well as the housing portion of the report, did not offset the weak retail sales.

First Franklin's bottom line interpretation of the numbers:

We believe this could be an inflection point for the economy as business costs are rising as they fight for labor in an extremely tight labor market. But it remains to be seen if higher wages and compensation will eventually run through the economy and lead to higher spending.

Save

Instant Insights /

Uh Oh, First Quarter GDP Is Very Weak

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