Technical Review

GDP Strength and Sticky PCE Inflation

GDP growth slowed in the first quarter to 1.6% down from 2.4% in the fourth quarter and a strong 4.9% in the third quarter. On the surface it looked like the economy had decelerated far more than expectations, but a closer look revealed that inventories (-0.3%) and imports (-0.9%) suppressed GDP growth.

GDP measures Domestic production, so imports are subtracted since imported goods and services are produced outside the US. From an accounting perspective it makes sense to subtract imports from domestic production, but in doing so it masked the underlying strength in demand in the...

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