(By Louis Basenese) On Friday, the Commerce department released underwhelming first-quarter GDP growth figures.
The U.S. economy only grew at an annual rate of 2.2%, against expectations of 2.5% GDP growth.
But don't freak. Another recession isn't imminent.
To the contrary. If we dig beneath the headline GDP figures, we find signs that important parts of the economy are actually gaining steam. Let me prove it…
Government's a Total Drag
With a federal budget deficit of over $1 trillion, we should rejoice when government spending ticks lower. So rejoice! Because that's precisely what's happening…
In the first quarter, federal government spending dropped 5.6%, which comes on the heels of a 6.9% decline in the fourth quarter.
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State and local government spending dropped, too, down 1.2%, marking the seventh consecutive quarter of declines. As Barron's notes, "The fall in state and local GDP actually has been the greatest since World War II."
Bottom line: If we strip out the drag from government spending, GDP actually rose 2.8%. In other words, we're no longer relying on the government to prop up the economy. That's a good thing!
Welcome Back, Mr. & Mrs. Consumer!
If we dig into the private sector side of GDP figures, we notice another promising sign – the consumer's back!
Consumer spending accelerated for the third quarter in a row, checking in at 2.9%. That's the fastest growth rate since the fourth quarter of 2010 – well ahead of expectations of a 2.3% increase.
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Considering consumers account for up to 70% of GDP, the strength is an undeniably positive sign for the economy. And this morning's consumer spending report only underscores the strength in the GDP figures.
As the Commerce Department revealed, household purchases increased 0.3% in March. And February's gain was revised higher to 0.9%. What's more, incomes rose 0.4%, which was the biggest increase in three months, according to Bloomberg.
So consumers aren't simply spending money they don't have. To the contrary, they're actually behaving thriftier, as the savings rates increased to 3.8%.
Bottom line: With the consumer back, retail stocks could get an additional lift in the coming months. Given improving fundamentals and below-market valuations, Macy's (NYSE: M) and Kohl's (NYSE: KSS) are two retail stocks worth considering. Especially Kohl's, since it also sports a modest 2.5% dividend yield.
Real Estate – Yes, Real Estate – is on the Mend!
Another undeniably bright spot in the latest GDP report is real estate.