US Q1 GDP growth was revised down to a 1.9% seasonally adjusted annual rate (SAAR)—expansionary, but nevertheless interpreted by some as a sign the US economy’s losing steam (keeping in mind this is the 11th straight quarter of growth).
The revised GDP breakdown, however, suggests things are overall better than the headline number might otherwise indicate. For one, business investment and exports were revised up from the initial estimate. Government spending was one of the larger downward revisions, but that isn’t necessarily a negative development, in our view—the private sector is typically better at allocating resources. Higher imports also detracted, but as we’ve written, rising imports tend to signal robust demand, not a flagging economy. The contribution from inventories was lower than first reported, but that doesn’t necessarily carry negative forward-looking implications. And consumer spending—the largest share of GDP—still grew a healthy 2.7% despite its small downward revision. Overall, Q1 GDP seems to be more evidence of a healthy US private sector.
Growth-rate volatility, whether in the headline or component readings, is typical amid an ongoing expansion, and a small Q1 wobble, in our view, needn’t mean recession is around the corner.
Econ 101, energy emphasis
Data aside, there was an interesting, seemingly relatively unnoticed bit of news about the US natural gas industry Thursday. As has been well reported, the US is positioned to become a net natural gas exporter in the near term—provided, that is, government doesn’t decide to stand in the way.
But in an election year, it’s likely the government will be less inclined to rock the boat than usual—which indeed seems to be the case here. Lest anything untoward happen as a result of approving natural gas export terminals and/or contracts—like price increases, related industry job losses, etc.—the government seems likely to err on the side of caution and curtail for the time being efforts to export natural gas.
Trouble is, approving such contracts and allowing exports would likely create far more winners than losers—internationally and domestically. It’s not hard to fathom international winners (in this case, Japan, who is interested in and willing to pay for US natural gas). But there are no doubt domestic winners, too—like producers who realize new markets for their goods, which then implies a greater need for employees, ancillary services like transportation, etc., creating more downstream winners.
Not to mention allowing US producers to export excess supply likely doesn’t push prices massively higher, contrary to popular Beltway belief. In a world where producers’ markets are limited, if prices stay too low, they’re likely to ultimately curtail production to maintain (or even increase) those prices. But if they’re allowed to expand their markets, demand likely remains robust and gets diversified to boot, meaning they’ll keep production flowing, potentially mitigating—if not offsetting altogether—price changes.
But don’t expect Washington, D.C. to sort the economics out anytime soon—politicians’ track record isn’t too great when it comes to Econ 101.