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Chapter 1: What are the latest GDP growth figures and their implications?
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First quarter GDP gets a big boost from business spending.
We have firms that are extremely focused on AI investment, and they're driving most of the momentum.
And the U.S. national debt now exceeds GDP, a once unthinkable threshold. Plus, the House approves a bill to fund most of the Department of Homeland Security, but not ICE. It's Thursday, April 30th. I'm Alex Zosola for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.
A new piece of important economic data came in today, GDP. It rose at a 2% rate in the first quarter. That's better than the half a percent from the end of last year when government shutdown was a big drag. But the first quarter was still a bit lower than economists expected. To dig into what's behind the numbers, I'm joined now by Greg Dacko, chief economist at EY Parthenon.
Greg, the economy's main engine, of course, is consumer spending. That softened in the first quarter to 1.6% from 1.9% in the fourth quarter. What's driving those changes and what do we know about how people are spending now?
I think in general, people are being increasingly cautious. We are in this environment where income growth is decelerating and inflation is accelerating. So spending power is diminishing, and that is increasingly a restraint on consumer spending activity. The encouraging thing is that we have a bifurcated consumer landscape.
So affluent consumers are still doing their fair share of spending, but lower to median income households are increasingly struggling in the face of these headwinds. And as a result, they're spending at a slower clip.
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Chapter 2: How is AI investment impacting business spending and GDP growth?
One of the other things we saw in the numbers today was that business spending picked up a lot during the quarter. It rose more than 10 percent. What kind of businesses are doing that spending and what are they spending on?
We have essentially a bifurcated landscape when it comes to business investment. We have firms that are extremely focused on AI investment, and they're driving most of the momentum. In fact, if you look at the GDP data for the first quarter, you saw that there was a surge in business equipment spending on info and processing equipment, as well as a surge in intellectual property products.
That's R&D, that's software investment, and that is all tied to AI. And those were the major factors that were driving business investment and, in turn, GDP activity.
Are there risks to the economy to have so much spending concentrated in one area?
It is a risk, and I have spoken in the past about the three fragile A pillars of growth, affluent consumers, AI investment, and asset price appreciation. When you have three narrow pillars of growth, it is encouraging when you have a virtuous cycle, but if there is a shock to one of these pillars, it will expose underlying fragilities in terms of economic momentum.
Outside of AI, we're seeing more hesitation when it comes to investing, when it comes to hiring, and that is curbing the underlying potential for growth in terms of private sector activity.
That was Greg Ducco, Chief Economist at EY Parthenon. Thanks, Greg.
Thank you.
With the latest GDP numbers comes a sort of scary-sounding milestone. The U.S. national debt now exceeds 100% of gross domestic product. The government is spending $1.33 for every dollar it collects in revenue. It's not the first time the debt's topped GDP, and that number might bounce around a bit. There also isn't some special level where debt goes from problematic to catastrophic.
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Chapter 3: What factors are influencing consumer spending trends in the first quarter?
That's after the break.
Thank you.
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Turning to Washington, the House has approved a long-delayed measure to fund most of the Department of Homeland Security. It funds the Coast Guard, FEMA, and TSA. And the bill now goes to President Trump for his signature. You may have noticed that absent from that list of agencies is ICE. Republicans are going to try to get legislation funding ICE and Border Patrol separately.
President Trump is withdrawing his nomination of doctor and health food advocate Casey Means to serve as U.S. Surgeon General. She didn't have enough support in the Senate to get confirmed. The president said today that he would instead nominate Nicole Sapphire for the role. She's the director of breast imaging at Memorial Sloan Kettering Cancer Center Monmouth and a Fox News contributor.
And turning to Maine, which is crucial to Democratic hopes of retaking the Senate, Janet Mills, the state's Democratic governor, today dropped out of the Senate race. She said she didn't have the financial resources to keep going. Her exit all but secures the Democratic nomination for progressive Graham Plattner, an oyster farmer and Marine veteran.
He'll face off against Republican Senator Susan Collins, who has held the seat since 1997. The business of Affordable Care Act health insurance has been hit hard by the loss of some federal subsidies. Plans have gotten more expensive and people are dropping them. And today, Cigna says it's not going to offer those plans anymore starting next year.
That's after Aetna dropped out of the market at the start of this year. Cigna's not a very big player in the ACA market, with about 369,000 people enrolled in its plans. Anawil D. Matthews, who covers health insurance for the journal, says Cigna's exit is a sign of trouble in the broader ACA business.
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