Personal consumption expenditures, which represent roughly two thirds of GDP, rose 6.1 percent - the strongest quarterly increase in six years. This spending spree was driven by strong income gains, a firm job market and soaring consumer confidence. I still expect consumer spending to remain quite strong going forward, but a 6 percent pace is not sustainable. Something like 4 percent seems more reasonable. T-Bill rates are bond equivalent yield.
All figures are quarterly or yearly averages, rounded to one decimal point.
Without this trade imbalance overall GDP growth would have actually been 2.5 percent stronger in the first quarter. With conditions in Japan, Korea, Indonesia, etc. Merrill Lynch expects trade will subtract about 1.5 percent from overall GDP growth for all of 1998, while slower inventory accumulation should reduce about another 0.5 percent from total output. This means that even if consumer spending remains strong, growing at about 4 percent, overall GDP growth will slow to approximately 2 percent because of the drag from slower inventory accumulation and deteriorating net exports. The CPI is up just 1.4 percent from a year ago, less than half the level it was when the Fed last pushed the fed funds rate up to 5.50 percent in March, 1997.