U.S. GDP growth accelerated in the first quarter, albeit at a slower-than-expected pace, while a monthly report showed the Fed’s preferred inflation gauge rising in line with expectations.
The E-Mini S&P 500 futures (ES), which had been advancing ahead of the report following oil’s retreat from a four-year high, moved sideways, while the dollar traded with a moderate loss.
AI-Investment, Export Boosts Q1 GDP
U.S. real GDP climbed at an annualized pace of 2% in the first quarter, relative to the previous three-month period, according to a Bureau of Economic Analysis (BEA) report published Thursday. This marked an acceleration from the fourth quarter’s 0.5% rate, although slower than the 2.2% forecast by economists, on average.
The BEA said investment, exports, consumer spending and government spending contributed to growth, although imports, which are a deduction from GDP, also increased.
Source: BEA
The increase in investment reflected strong growth in equipment, intellectual property products, and private inventory investment. Equipment investment received a shot in the arm from higher spending on information processing equipment, specifically computers and peripheral equipment. As the artificial intelligence revolution strengthens despite the macro and geopolitical uncertainties, companies continue to splurge on data center infrastructure to stay ahead of competition. Facebook parent Meta, for one, announced Wednesday an upward adjustment to its 2026 capital spending plan, which, however, did not go down well with investors.
Q1 Inflation Gauges Spike
- The GDP price index, also called the GDP deflator, climbed 3.6%, slower than 3.7% in Q4.
- The Q1 personal consumption expenditure (PCE) index climbed 4.5% (up from 2.9%).
- The core PCE index rose 4.3% (up from 2.7%).
March Income, Spending Robust; PCE Inflation Meet Consensus
A separate report showed personal income rising 0.6% month over month (MoM) in March, in line with expectations, marking a sharp improvement from unchanged income in February. Personal spending grew at an accelerated pace of 0.9% from 0.6% in the previous month. The March spending growth was also in line with expectations.
Among the inflation readings:
- The PCE index climbed 0.7% MoM (up from 0.4%) but in line with expectations.
- It rose 3.5% (up from 2.8%), also matching expectations.
- The core PCE index increased by 0.3% MoM (down from 0.4%) and up 3.2% year over year (YoY) (up from 3%), with both readings in line with the consensus.
Jobless Claims Fall to Multi-Decade Low
The routinely scheduled jobless claims report showed that the number of individuals filing for unemployment benefits fell by 26,000 to 189,000 in the week ended April 25 from the previous week’s upwardly revised (by 1,000) level of 215,000. The recent week’s claims marked the lowest level since 1969. Economists had expected a much more modest dip to 213,000.
The four-week average, which smooths volatility declined to 207,500 to the previous week’s upwardly revised (by 250) average of 211,000.
Continuing claims, which are reported with a week’s lag and refers to people availing unemployment benefits after their first filing, moved down 23,000 to 1.785 million.
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