Inventories Depress GDP

Economic growth wasn't as weak as suggested by real GDP which rose only 1.1% (saar) during Q1. During Q4, inventories surged as consumers pivoted from buying goods to purchasing services. Goods producers and providers stopped building unwanted inventories by cutting their orders to their suppliers and by lowering their prices to move their excess merchandise out the front door. So, excluding inventories, real final sales rose 3.4% during Q1, led by a solid 3.7% increase in real consumer spending, which also helped to reduce inventories (chart).

During Q1, inventories declined $1.6 billion in real GDP after soaring by $136.5 billion during Q4 (chart). That swing depressed real GDP significantly.