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The US economy, according to the first estimate, grew at a 3.2% rate during the first quarter, surpassing expectations. Analysts at Wells Fargo explained that the reports was not quite strong as the headline suggest.  

Key Quotes:  

“Not only was the headline rate of growth stronger than most analysts expected, but it also represents a pick-up in growth relative to the 2.2% rate of growth that the economy registered in the fourth quarter. That said, the underlying details were not quite as strong as the headline rate of growth suggests.”

“There was a sizeable build of inventories ($128 billion at an annualized rate), which added 0.7 percentage points to topline GDP growth. Given the lackluster rate of domestic final spending, some of this inventory build likely was unintentional. Therefore, inventory accumulation should fall back in coming quarters.”

“Net exports added 1.0 percentage point to the overall rate of growth, which is among the largest positive contributions this component has made in this cycle. Although exports grew at a modest rate of 3.7%, imports fell 3.7%. Given continued growth in domestic demand, real imports likely will rebound in coming quarters,   which also will exert a drag on growth.”

“Today’s stronger-than-expected GDP print does not materially change the outlook for Fed policy, at least in the near term. That is, the FOMC likely will refrain from raising rates for the foreseeable future. First, the underlying details were not as strong as the headline rate of GDP growth suggests. Second, the core PCE deflator rose at an annualized rate of just 1.3% in the first quarter. Consequently, this measure of consumer prices was up just 1.7% on a year-over-year basis in the first quarter.”