GDP Miss Likely Temporary, But Inflation Concerns Still Linger

(KNSI) – A local economist says the first quarter GDP miss may be just a blip.

The U.S. Bureau of Economic Analysis reported growth of 1.6% annualized on Thursday, below what experts had predicted. St. Cloud State University Professor King Banaian believes one of the components pulling that number down will reverse.

“The low number in GDP largely stemmed from two places. One, inventory investment reversed. Businesses were selling goods out of their current inventory and that actually is a drag on GDP.”

Companies naturally need to replenish those inventories in the future that they were selling through in the first quarter as consumer spending stays steady. The negative factor that could be harder to improve is a collapse in exports.

The headline growth miss was not the only negative aspect of the report. Banaian says when it comes to inflation reaccelerating, the writing was on the wall, given data in recent months. “The inflation number wasn’t a shock. It just confirms information we had.”

This morning, the Federal Reserve released its latest Personal Consumption Expenditure figure, which showed core prices jumped 2.8% from a year ago. Continued price pressures are weighing on consumers as the personal savings rate has fallen by two full percentage points over the past year.

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