First-Quarter GDP Growth Is Revised Notably Lower - June 26, 2013
The nation's economy grew in the first quarter of this year, extending the enviable four-year uptrend. But the latest and final revision of the U.S. gross domestic product for that period showed a materially lesser rate of improvement than had been indicated earlier.
Specifically, the Bureau of Economic Analysis, a unit of the Commerce Department, reported that the output of goods and services produced by labor an property located in the United States increased by an annual rate of 1.8% in the opening stanza. (That is from the fourth quarter to the first quarter.) The final estimate for the period showed a notably lesser gain than the earlier suggested 2.4% increase. Expectations, meantime, had been for no change in the pace of improvement.
Principally, the lowered estimate reflected a lesser rate of gain in personal consumption expenditures and a weaker showing by U.S. exports. Overall, the increase in real, inflation-adjusted GDP primarily reflected increases in personal consumption expenditures, private inventory investment, and residential fixed investment--or housing construction. The inventory gain and the better consumer spending numbers primarily drove the increase from the fourth quarter of 2012, when the gain in GDP was a token 0.4%.
Some data, meantime, showed a deterioration from the fourth quarter to this year's opening period. For example, nonresidential fixed investment added just 0.4% in the most recent period, down from a stellar gain of 13.2% to end 2012. Even residential fixed investment, a hallmark of the economy's recent strength, rose less sharply in the first quarter than during the final period of last year.
As to inventory investment, a real gauge of future activity, it added 0.57 of a percentage point to real GDP growth in the opening period, after having subtracted 1.52 percentage points to close out last year. Thus, backing out inventories, the economy's rate of growth actually slackened a bit in the most recent period. Unfortunately, those inventories may now have to be worked down a bit, which is one reason we think that growth may ease off nominally in the fast-ending quarter, with the presumptive gain in output likely to be in the 1%-2% range. The recent firming in some indicators, though, suggest that this moderation may be very limited, and that the pace of expansion should pick up some after midyear.
This prospective step-up in growth in the second half is likely behind the Federal Reserve's recent suggestion that it is likely to slow down, then eventually bring to a conclusion, its ambitious bond-buying efforts, a popular program that has helped to underpin the extensive bull market in stocks.
On balance, this was a disappointing report, but one that we do not think alters the outlook going forward, either for GDP growth or for the Fed's plans to pull back on its aggressive monetary accommodation.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.