Real gross domestic product (GDP) increased at an annual rate of +1.6% quarter-over-quarter, which was slower than +3.4% in Q4 2023. This reflects January’s weather, lower inventory, exports, and government spending. (in other words, it wasn’t a real slowdown). On a year-over-year basis, real GDP increased +3%, an +50-basis point improvement quarter-over-quarter. In nominal terms, the increase was +5.5% to $28.3T, which is similar to last year’s rate. Said differently, U.S. economic growth is strong and steady.
The March Personal Consumption Expenditure (PCE) report showed a nice overall increase, +$161B month-over-month or +5.8% year-over-year, to $1.9T (on a seasonally adjusted annual rate). Moreover, the balance between spending on goods versus services continues to normalize as we have been calling for (our spending on "stuff" versus "goods” story). Spending on Stuff increased +$26B to $2.28T, or +5% year-over-year. Fun increased only +$13B (+8.3%) to $2.64T. The dollar increase on Stuff was nearly 2x that of Fun; for 2023, it was the other way around which adversely impacted manufacturers and retailers. In terms of the rate of growth, last year was +4.5% for Stuff and +9% for Fun. And so, the +5% vs. +8.3% reflects a moderation in Fun’s outperformance.
The earnings results from Meta (Facebook and Instagram) and Google (including YouTube) also demonstrated good consumer economic momentum and the rebalance to "Stuff". U.S. advertising revenue for Meta of $15.4B, was up +$2.7B (up +22%) and for Google $54B, was up +$3.6B (up +15%), which was similar to Q4 (i.e., the economy remains strong). Recall that the two businesses appreciably slowed in the second half of 2022 and was up only slightly at the start of last year. While advertising picked up going through 2023, as noted, spending by Temu and Shein was the largest driver. For Q1 2024, a possible diminution from Temu/Shein suggests that other advertisers may be filling in with the intensity. We know that Etsy, Revolve, and others pulled back from spending in 2023 as their business models couldn’t support the high prices paid on Instagram, TikTok, and YouTube given that Temu and Shein were spending at any price to “hog the microphone.” We’ll have to wait for more earnings reports to get a better sense. If true, that’s a positive for U.S. brands and retailers, including arts & craft retailers (which we wrote about here). We think that the strength and broadening of advertising spend also demonstrates an improvement in the economy and consumer spending on Stuff.
