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CounterPunch Exclusives

Investment and Government Spending Boost GDP, While Inflation Climbs to 4.5 Percent

Photo by Joachim Schnürle

GDP grew at a 2.0 percent annual rate in the first quarter, driven by large increases in investment and government spending. Non-residential investment grew at a 10.4 percent annual rate, adding 1.39 percentage points (p.p.) to growth in the quarter. Government spending was also a major contributor to growth, growing at a 4.4 percent rate and adding 0.73 p.p. to growth. Consumption grew at just a 1.6 percent annual rate, adding 1.08 p.p. to growth.

Consumption Was Driven by Health Care

Increased spending on health care accounted for 47.2 percent of the growth in consumption in the quarter. Nominal spending on health care services increased at an 8.3 percent rate in the quarter, while real spending grew at a 4.5 percent rate. Nominal spending is up 7.9 percent from its year-ago level. It is likely that most people don’t distinguish between health care inflation as measured by the statistical agencies and what they are paying for health care, so this rise in nominal spending might be the better measure of the perceived burden of health care expenses.

Financial services was the only other component of consumption showing rapid growth, increasing at a 4.6 percent rate. Durable goods consumption was flat, while consumption of non-durable goods fell at a 0.2 percent rate. Car purchases rose at a 5.2 percent rate, but that followed sharp declines in the prior two quarters.

Spending at hotels and restaurants fell at a 2.8 percent rate after falling at a 1.2 percent rate in the fourth quarter. The fall in these discretionary expenditures likely indicates that people are feeling financially stressed.

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