U.S. GDP Climbs Slightly Less Than Initial Q1 Estimate

by Ike Obudulu Posted on May 30th, 2019

Washington: U.S. economic growth in the first quarter accelerated by slightly less than initially estimated, according to revised data released by the Commerce Department on Thursday.

The Commerce Department said real gross domestic product surged up by 3.1 percent in the first quarter, reflecting a slight downward from revision from the previously reported 3.2 percent jump.

The downwardly revised increase in GDP, which matched economist estimates, still represented a notable acceleration from the 2.2 percent growth seen in the fourth quarter of 2018.

The slightly slower than previously estimated GDP growth reflected downward revisions to non-residential fixed investment and private inventory investment and an upward revision to imports, which are a subtraction in the calculation of GDP.

Meanwhile, the report showed upward revisions to exports and consumer spending, although the pace of consumer spending growth still slowed to 1.3 percent in the first quarter from 2.5 percent in the fourth quarter.

The acceleration in GDP growth in the first quarter reflected an upturn in state and local government spending, accelerations in private inventory investment and exports, and a smaller decrease in residential investment.

However, Paul Ashworth, Chief U.S. Economist at Capital Economics, previously described the spike in state and local government spending as “very suspicious,” noting the rebound was almost entirely due to a jump in government investment in highways and roads.

The revised data also showed core consumer prices, which exclude food and energy prices, climbed by 1.6 percent in the first quarter compared to the previously reported 1.7 percent increase.

“Consumer inflation is downright weak,” said Chris Low, chief economist at FTN Financial. “The Fed will dismiss it as transient, as they do whenever inflation is weak, but it does not feel transient given the failure of consumption to recover so far in the second quarter.”

Subdued Inflation

Also, inflation was even more subdued than initially reported, which could bolster some calls for a Federal Reserve interest- rate cut. The personal consumption expenditures price index, excluding food and energy, rose at a 1% pace — the slowest in three years and revised from 1.3%. The Fed targets 2% annual gains for the broader PCE price index.

The combined 1.56 percentage-point boost from inventories and trade was only slightly below the originally-reported 1.68-point lift. This surge could ultimately weigh on growth in coming quarters, adding to the need for consumers to become the main growth driver again.

Trade added 0.96 percentage point to GDP growth, revised down from 1.03 point, as the upward revision to imports outstripped higher exports. The inventory contribution was revised to 0.6 point from 0.65 point, as retail and wholesale estimates were lowered and manufacturing was higher, according to the report.

Read more: U.S. Goods-Trade Gap Widens Second Month to Highest This Year

The report showed upward revisions to investment in structures, along with downward revisions to private equipment investment, particularly industrial gear, as well as software. The higher consumer spending reflected data on motor vehicle registrations, the Commerce Department said.

In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 215,000 for the week ended May 25.

The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 3,750 to 216,750 last week. Continuing strength in labor market conditions is seen supporting growth.

GDP q/q primer

Current-dollar estimates are valued in the prices of the period when the transactions occurred—that is, at “market value.” Also referred to as “nominal estimates” or as “current-price estimates.”

Real values are inflation-adjusted estimates—that is, estimates that exclude the effects of price changes.

The gross domestic purchases price index measures the prices of final goods and services purchased by U.S. residents.

The personal consumption expenditure price index measures the prices paid for the goods and services purchased by, or on the behalf of, “persons.”

Profits from current production, referred to as corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj) in the NIPAs, is a measure of the net income of corporations before deducting income taxes that is consistent with the value of goods and services measured in GDP.

The IVA and CCAdj are adjustments that convert inventory withdrawals and depreciation of fixed assets reported on a tax-return, historical-cost basis to the current-cost economic measures used in the national income and product accounts. Profits for domestic industries reflect profits for all corporations located within the within the geographic borders of the United States.

The rest-of-the-world (ROW) component of profits is measured as the difference between profits received from ROW and profits paid to ROW.

Gross domestic product (GDP)

Gross domestic product (GDP) is the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production. GDP is also equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.

Gross domestic income (GDI)

Gross domestic income (GDI) is the sum of incomes earned and costs incurred in the production of GDP. In national economic accounting, GDP and GDI are conceptually equal. In practice, GDP and GDI differ because they are constructed using largely independent source data. Real GDI is calculated by deflating gross domestic income using the GDP price index as the deflator, and is therefore conceptually equivalent to real GDP.

Why Markets Care About GDP q/q

GDP quarterly change (GDP q/q) measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy.

It is released quarterly by the Bureau of Economic Analysis of the Commerce Department about 85 days after the quarter ends

The usual effect is that is  ‘Actual’ greater than ‘Forecast’, the report is considered good for the dollar and vice versa.

While this is q/q data, it’s reported in an annualized format (quarterly change x4). There are 3 versions of GDP released a month apart – Advance, Preliminary, and Final. The Advance release is the earliest and thus tends to have the most impact;

BEA releases three vintages of the current quarterly estimate for GDP: “Advance” estimates are released near the end of the first month following the end of the quarter and are based on source data that are incomplete or subject to further revision by the source agency; “second” and “third” estimates are released near the end of the second and third months, respectively, and are based on more detailed and more comprehensive data as they become available.

Gross Domestic Product (GDP) q/q is the broadest measure of economic activity and the primary gauge of the economy’s health.

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