Surprising Developments in "Unchanged" U.S. GDP | Lord Abbett
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Economic Insights

Revised figures for first-quarter U.S. economic growth carry significant implications for the trajectory of inflation and consumer spending.

How might one characterize the revised figures for economic growth in the first quarter of 2019 from the U.S. Bureau of Economic Analysis (BEA)? The same, but different. The headline figure for U.S. gross domestic product (GDP) was unchanged from the government’s earlier 3.1% estimate, according to a report released on June 27. But there were some interesting changes beneath the surface of the data.

The most consequential was an upward revision in the core personal consumption expenditure (PCE) deflator from 1.0%, quarter-over-quarter, to 1.2%. (The PCE is the U.S. Federal Reserve’s [Fed] favored measure of inflation.) In a world in which there has been much hand-wringing over the Fed “missing” the 2.0% target for headline inflation by an increasing margin, any indication of a sustained uptick in PCE could make a difference in how aggressively the market prices in interest-rate cuts.

There were also some interesting shifts in the underlying expenditure composition of GDP.  Consumer spending was revised down 0.4%—from 1.3% to 0.9%—as goods purchases were revised higher (as signaled by the annual benchmark revisions to retail sales data), but spending on services was revised sharply lower (perhaps due to the higher PCE deflator mentioned earlier).

Nonresidential fixed investment—the component thought to be most vulnerable to uncertainty stemming from trade conflict—was revised up from 2.3% to 4.4% because of a much higher estimate of spending on intellectual property and somewhat higher equipment spending.

State and local government spending was also revised upwards, indicating that the most significant component of fiscal drag is fading.

Summing Up: Slower, But Still Solid, U.S. Growth
The BEA report showed that in the first quarter of 2019, consumer spending and domestic final demand weakened, but headline U.S. GDP accelerated because of large positive impulses from net exports and inventory change. We expect these dynamics to reverse sharply in the second quarter, even as overall GDP decelerates from 3.1% to around 2.0% (based on our current estimate). The first-quarter revisions released on June 27 make the slowdown in consumer spending during the quarter even more of an outlier than it appeared to be previously and underscores the ever-increasing importance of intellectual property as a driver of business fixed investment.

Overall, the data remain consistent with our view that, despite the recent inversion of the three-month/10-year U.S. Treasury curve, the underlying strength in other economic indicators and measures of broad financial conditions suggest the end of the current economic expansion is not on the horizon yet. The current U.S. economic environment—in which interest rates and inflation remain low, and the risk of near-term recession appears small—continues to present a favorable backdrop for U.S. equity and credit investments, in our view.


The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise.

Forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

Fixed investment is a component of quarterly U.S. gross domestic product that consists of purchases of residential and nonresidential structures, equipment and intellectual property products by private businesses, by nonprofit institutions, and by governments in the United States. Nonresidential fixed investment specifically refers to purchases of both nonresidential structures and equipment and software.

Gross Domestic Product (GDP):  The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

The personal consumption expenditure (PCE) price index is one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education.  No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein.   If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.

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