Headline GDP masks underlying weakness

This week’s data releases helped to confirm that first-quarter GDP growth was much better than we originally feared, but the underlying strength of the domestic economy is a concern. As it stands now, we estimate that first-quarter GDP growth was 2.2% annualised, in line with the gain in the final quarter of last year. But final sales to domestic purchasers, a better gauge of underlying strength, apparently increased by only 1.2%, which would be the weakest showing in more than five years.