Even the Fed’s suppressed inflation measure without food or energy rose 2.3% year on year in the first quarter.

By Wolf Richter for WOLF STREET.

The US economy, as measured by inflation-adjusted GDP, grew 1.6% in the first quarter compared to the fourth quarter of 2020, according to the anticipated estimate of the Economic Analysis Office this morning.

If you read in the headline that it increased “6.4%”, that sounds impressive, but it was “annualized”; it essentially multiplied the quarterly growth rate (1.6%) by 4. There are not many countries outside of the United States, if any, that report “annualized” GDP growth rates, because they are really misleading for normal people.

GDP inflation jumped 3.8%, PCE inflation 3.5%.

The BEA’s broadest measure of inflation, the price index which roughly matches the adjustment of inflation to GDP (the ‘gross domestic purchase price index’), jumped 3, 8% annual rate in the first quarter, more than double the rate of 1.7% in the fourth quarter.

The BEA’s narrower PCE (“personal consumption expenditure”) price index jumped 3.5% year-on-year in the first quarter.

And the BEA price index, which has become the Fed’s measure of inflation, the “core PCE” (PCE without food or energy) increased by 2.3% year-on-year, exceeding the former Fed target. 2.0%. “Old target” because now the Fed is looking for inflation above 2%.

GDP in dollars.

In dollar terms, real GDP in the first quarter stood at a “seasonally adjusted annual rate” of $ 19.09 trillion. It was still down about 0.9% from the high in Q4 2019 – catching up:

Consumer spending rose 2.6% compared to the previous quarter, at an annual rate of $ 13.3 trillion in “chained 2012 dollars” (to account for inflation), a little below the high of the fourth quarter of 2019.

This jump was fueled by the $ 600 stimmies that came out in late December and the first waves of the $ 1,400 stimmies that came out at the end of March. In the first quarter, consumer spending represented 69.7% of GDP:

Gross private domestic investment falls by 1.3% in the first quarter compared to the previous quarter at a seasonally adjusted annual rate of $ 3.49 trillion. This includes:

  • “Fixed investments” increased by 2.4% (investments in non-residential structures and equipment, residential structures and intellectual property) to $ 3.54 trillion (annual rate).
  • Investments in private inventory fell by $ 148 billion (annual rate) as many items are now scarce and entangled in all kinds of supply chain issues and bottlenecks

Record trade deficit, a massive drag on GDP. The “net exports” balance (exports minus imports, the infamous trade deficit) deteriorated 4.8% in the first quarter from the previous quarter, to a new worst record of – 1.18 trillion. dollars (annual rate in 2012 dollars).

Exports add to GDP, imports reduce GDP. Everything went wrong with everyone in the first trimester. Exports of goods have fallen and exports of services have fallen; but imports of goods surged and imports of services increased. The graph makes one wonder how the U.S. economy could function if globalization and the offshoring of everything for two decades hadn’t left us with this mess:

Public consumption and investment increased by 1.5% in the first quarter compared with the previous quarter to $ 3.37 trillion (annual rate). This includes goods and services that federal, state, and local governments consume, such as fuel for government vehicles, office supplies, equipment, and rent. And that includes government investments, such as IT equipment and infrastructure.

But that doesn’t include stimulus payments, unemployment benefits, social security payments, government salaries, and other direct payments to consumers, which are counted in GDP when consumers spend that money on the framework. of their consumer spending:

The inflationary mentality has taken hold. Increases in input prices are squeezing profit margins, and large firms are raising their prices and signaling massive overruns in inflation. Small businesses are too, with a big picture of soaring costs in the roofing manufacturing industry. Lily… Forget about 2% inflation. With sharply squeezed margins, large companies are raising prices, pointing to massive inflation overrun

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