Recession Can Wait

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 Mr. Justin Lahart is a wonderful column.

Recession Can Wait—the GDP Report’s Bright Side

The economy was a lot better than it looked in the first quarter

By Justin Lahart
The GDP report showed that consumer spending grew at a 3.7% annual rate last quarter. PHOTO: ANGUS MORDANT/BLOOMBERG NEWS

The recession so many investors are expecting didn’t come in the first quarter. It might not come in the second quarter, either.

The Commerce Department on Thursday reported that real, or inflation-adjusted, gross domestic product grew at a 1.1% annual rate in the first quarter. That was lower than the fourth quarter’s 2.6% and below the 2% economists polled by The Wall Street Journal had forecast. Still, it counted as a solid report.

A pair of late-breaking releases this week—a new benchmarking of retail sales figures on Monday that pointed to softer consumer spending growth, and a durable goods report on Wednesday that indicated a weakening in business investment—suggested that first-quarter GDP would come up short of economists’ estimates. But Thursday’s report showed that consumer spending grew at a 3.7% annual rate last quarter, better than the fourth quarter’s 1%. And business investment was a modest positive. Final sales to private domestic purchasers, which measures underlying demand in the economy, grew at a solid 2.9% in the first quarter after flatlining in the fourth quarter.

The biggest drag on GDP came from a swing lower in inventories, which clipped 2.26 percentage points off growth. But that could count as a positive for GDP in the current quarter. If businesses merely opt to keep inventory levels stable, they could need to step up production to keep up with demand.

Another potential positive for currentquarter GDP is the housing market which, while still a mess, isn’t quite so bad as it was in fall. Indeed, Thursday’s report showed that reduced residential investment cut 0.17 percentage point out of GDP growth in the first quarter, much less than the fourth quarter’s 1.2 percentage points or the third quarter’s 1.42 points.

There are, to be sure, some big hurdles the economy is now facing, including fallout from the failures of Silicon Valley Bank and Signature Bank, the accumulated effects of the Federal Reserve’s rate-raising campaign and the possibility that headline-grabbing layoffs from large companies might start to bleed into the rest of the labor market. So far, though, none of those things appear to be much in evidence. Indeed, the Labor Department on Thursday reported that initial claims for unemployment last week fell to 230,000—quite low by prepandemic standards—from 246,000 a week before.

So even if consumers cool their heels a little bit, the job market is still giving them the wherewithal to keep spending, which ought to keep the economy afloat for now. Moreover, GDP isn’t the sole measure used to determine whether the economy is in a recession. The National Bureau of Economic Research, which has been the arbiter of U.S. downturns since before the government began producing data on GDP and gross national product, looks at an array of measures, including employment, industrial production and consumer spending.

A downturn might be coming. But not yet.

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