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New data shows the U.S. economy contracted in the first quarter of this year, keeping pace with shifting expectations but down sharply from the prior — already disappointing — estimate.
On Thursday, the Bureau of Economic Analysis’ second estimate of real gross domestic product showed output produced in the U.S. declined at an annual rate of 1% in the first quarter of 2014. This is relative to fourth quarter 2013, when real GDP increased 2.6%.
The estimate is down significantly from BEA’s 0.1% advance estimatereleased last month and makes Q1 the U.S. economy’s worst quarter in three years. However, economists were anticipating a downward revision and the major stock indices remained in the green immediately after the release indicating investors were also prepared for bad news.
In a note on the release PNC Chief Economist Stuart Hoffman wrote, “I believe this real GDP decline, mostly due to the polar vortex, coiled the ‘economic spring’ even tighter for a sharp snap- back (boing!) this quarter where I have an above-consensus forecast for a 4.0% annualized rise in real GDP. I expect real GDP growth to settle back down to near a 2.8 percent annual rate in the second half of this year.”
The revision, BEA explained in a release, was largely due to a greater than previously estimated decline in private inventories. The 1% decrease in real GDP reflected the negative contribution from private inventory investment as well as declining exports, declines in both residential and nonresidential fixed investment and lower local government spending. The rate was also negatively impacted by an increase in imports but partially offset by an increase in federal government spending (the first in a year and a half).
Like Hoffman, RBS Economist Guy Berger takes an optimistic view. He pointed out in a note that much of the downward revision was due to inventories — which were built up at the end of 2013 — and trade deficit. Stripped of inventories and trade GDP was revised up marginally from 1.5% growth to 1.6% which, he said, is not great but is better than shrinkage. ”Moreover,” Berger added, “the downward revision to Q1 inventories is a plus for Q2 GDP growth (i.e., forecasts for Q2 will likely get revised up).”
Read the full story: www.forbes.com
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