BEA cuts Q1 GDP to 1.8% in final estimate

posted at 10:41 am on June 26, 2013 by Ed Morrissey

Normally we don’t see drastic shifts in GDP reports by the final estimate, as the interim estimate in the second month usually deals with most of the dramatic updates in economic measures.  For the first quarter of 2013, though, the big adjustment comes last.  US GDP in the opening quarter, which was initially estimated at 2.5% and adjusted to 2.4% in the second report, limped into the finish at just 1.8% annualized growth:

Real gross domestic product –the output of goods and services produced by labor and property located in the United States –increased at an annual rate of 1.8 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, real GDP increased 2.4 percent. With the third estimate for the first quarter, the increase in personal consumption expenditures (PCE) was less than previously estimated, and exports and imports are now estimated to have declined (for more information, see “Revisions” on page 3).

The big decline came in consumer spending, dropping from an earlier reported 3.6% annualized increase to just 2.6%.  Exports actually contracted by 1.1% after having been estimated to have grown, CNBC reports, and business investment remained stagnant.  Real final sales of domestic product, a key indicator that measures actual growth outside of inventory inflation, grew by only 1.2%, the slowest in a year.

Needless to say, this paints a bleaker picture of the economy than economists expected:

Economists polled by Reuters had expected first-quarter GDP growth would be left unrevised at 2.4 percent. When measured from the income side, the economy grew at a 2.5 percent rate, slower than the fourth-quarter’s brisk 5.5 percent pace.

Details of the report, which showed downward revisions to almost all growth categories, with the exception of home construction and government, could cast a shadow over the Federal Reserve’s fairly upbeat assessment of the economy last week.

Though the data is fairly backward looking, it comes as financial market conditions are tightening after Fed Chairman Ben Bernanke said last week the U.S. central bank would likely begin to slow the pace of its bond-buying stimulus later this year and stop the program in 2014.

Economists fear that could undercut growth, which has recently shown signs of picking up.

Well, actually it hasn’t, which is what this report shows.  This comes off of a 2012 Q4 which only registered 0.4% annualized growth, which means six solid months of stagnation.  We’re not seeing anything in Q2 which indicates significantly accelerated growth except perhaps in the housing markets — which did pretty well in Q1 and had its best quarter since 2012 Q2.  The future, as the Fed noted, looks even more cloudy, thanks to the end of the QE Express and a lack of any solid growth to replace it.

In other words, nothing much has changed since the official end to the recession, and change doesn’t appear to be on the horizon, either.

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Unexpected…

Drained Brain on June 26, 2013 at 10:44 AM

If only there were some way to add 30 million people to the legal citizenry, we could nip this problem right now and experience unparalleled economic growth.

Bishop on June 26, 2013 at 10:45 AM

Duh . Oboobi promised to strangle business thru regulations and is succeeding.

AH_C on June 26, 2013 at 10:45 AM

Yeah, this is the prefect time to pass new global warming sharia religion laws. Just what the economy needs.

Oil Can on June 26, 2013 at 10:46 AM

All the regs that add 100s of billions to the cost of business is money diverted from consumer growth

AH_C on June 26, 2013 at 10:47 AM

The laser-focus on the economy continues–destroying the economy, that is.

BuckeyeSam on June 26, 2013 at 10:49 AM

All the regs that add 100s of billions to the cost of business is money diverted from consumer growth

AH_C on June 26, 2013 at 10:47 AM

But the compliance and enforcement costs enrich government and liberal causes.

BuckeyeSam on June 26, 2013 at 10:50 AM

If there is an un-corrupted agency in the Federal Government, I don’t know which one it is, but I am sure it is just a temporary oversight that the White House will soon be rectify.

The next Republican President had better roll heads on a massive scale. I know that is making a big assumption.

drunyan8315 on June 26, 2013 at 10:52 AM

If only there were some way to add 30 million people to the legal citizenry, we could nip this problem right now and experience unparalleled economic growth.

…and jack up the cost of energy and health care so that business could thrive and flourish in such a dynamic and prosperous environment.

Wyznowski on June 26, 2013 at 10:52 AM

Duh . Oboobi promised to strangle business thru regulations and is succeeding.

AH_C on June 26, 2013 at 10:45 AM

Well, yeah, but he did say he didn’t want to drive ALL businesses out of business.

iurockhead on June 26, 2013 at 10:58 AM

The only reason housing is going up is REITs paying cash at above market values. Mortgage applications are down and so is lumber.

JimK on June 26, 2013 at 11:04 AM

Hey, looks like we’re going to have an unexpected boom in the wedding industry…

trigon on June 26, 2013 at 11:05 AM

Surprise,Surprise,Surprise!!!

portlandon on June 26, 2013 at 11:06 AM

This is what a ROARING economy looks like under Obama.

……and the permanent Progressive rule in America.

PappyD61 on June 26, 2013 at 11:16 AM

One sure-fired way to improve consumer spending is to not allow government to tax the living blazes out of everything at every stage of production and distribution. It allows us all to have a bit more “disposable” income to allocate to the “real” markets.

Government spending only gives us failed enterprises like… Solyndra.

Turtle317 on June 26, 2013 at 11:17 AM

“Who cares about faltering GDP, it’s rapid growth in entitlements I’m talking about! That’s where the new growth milestones can be easily reached!” – BHØ /

ExpressoBold on June 26, 2013 at 11:19 AM

Turtle317 on June 26, 2013 at 11:17 AM

I often wonder what the “real” price on everything would be if you removed all the taxes from start to finish for a product.
I always wondered also how one thing that was taxed once when you bought it…like say a used car, could be taxed again. Not only does the person buying the car get taxed, but the person selling the car gets taxed.

watertown on June 26, 2013 at 11:26 AM

I’m sorry can we please talk about importing some more people? And can they all be gay?

Cindy Munford on June 26, 2013 at 11:32 AM

My wife works in the bowels of Big Bank. The housing “boom” is not because real people are buying houses. Mortgage volume is down from last year. Temps are being laid off. The “boom” is being driven by flippers and investors, who have the money to invest and don’t need mortgages.

MNHawk on June 26, 2013 at 11:34 AM

Mortgage applications are down and so is lumber.

JimK on June 26, 2013 at 11:04 AM

Finally, I’m not the only person who gets that. It’s been lonely out here. ;-)

MNHawk on June 26, 2013 at 11:35 AM

MNHawk on June 26, 2013 at 11:34 AM

Don’t forget those of us who are refinancing to get rates that thought they would never see in their lifetime.

Cindy Munford on June 26, 2013 at 11:50 AM

Focused like a laser.

From the Death Star.

KMC1 on June 26, 2013 at 11:57 AM

No problem. I’m sure Obama will pivot to the economy any day now. That will solve everything.

Chris of Rights on June 26, 2013 at 11:59 AM

This communist clown has been cooking books on every stat issued by the government for 4 !/2 years.

It’s time to impeach him for fraud.

MaaddMaaxx on June 26, 2013 at 12:00 PM

Don’t forget those of us who are refinancing to get rates that thought they would never see in their lifetime.

Cindy Munford on June 26, 2013 at 11:50 AM

That’s even down as rates are starting to rise. Sure, that’s what drove volume last year.

Did we mention the boom in construction of new homes? New mult-family homes that is. Apartments. Because the new American Dream is a 300 pound man (or woman as I had once) walking on your ceiling, a loud stereo under your floor, and the couple next door to you banging their bed on your walls.

MNHawk on June 26, 2013 at 12:02 PM

Only off by 25%…..
.
For these inept, corrupt bureaucrat grifters, for them, thats pretty good actually.

FlaMurph on June 26, 2013 at 12:04 PM

Tom Blumer dug up a rather odd “quirk” – the farm inventory contributed +0.83 percentage points to the +1.8 percent real GDP growth.

To that, I’ll add that the implicit deflator between nominal and real GDP of 1.3 is rather low, and indeed arguably too low. That means that real GDP, which is supposed to fully take inflation into account, isn’t keeping up with inflation.

Steve Eggleston on June 26, 2013 at 12:08 PM

No problem. I’m sure Obama will pivot to the economy any day now. That will solve everything.

Chris of Rights on June 26, 2013 at 11:59 AM

The REB’s ‘pivots’ are more like ballet pirouettes. They happen so fast you can miss them. I think he learned that from Rahm Emanuel.

slickwillie2001 on June 26, 2013 at 12:10 PM

ZeroHedge reports it at 1.77% but that number is not real anyway.

They are still miscalculating it with annualized deflators, so it’s RUBBISH!

dogsoldier on June 26, 2013 at 12:30 PM

ZeroHedge reports it at 1.77% but that number is not real anyway.

They are still miscalculating it with annualized deflators, so it’s RUBBISH!

dogsoldier on June 26, 2013 at 12:30 PM

Which rounds up to 1.8%.

The deflator this time around is 1.3. Who here believes that annualized inflation is only 1.3%?

Steve Eggleston on June 26, 2013 at 12:36 PM

Meanwhile, we have officially transitioned to a Fed Reserve-run economy from a results-based one, with the 25% high miss in GDP growth sparking a stock market rally based on hope the continuance of the POR Economy will keep Quantitative Easing going instead of a historically-called-for market crash.

Steve Eggleston on June 26, 2013 at 1:21 PM

Can we begin referring to this as a “lost decade” now?

RobertE on June 26, 2013 at 1:22 PM

Can we begin referring to this as a “lost decade” now?

RobertE on June 26, 2013 at 1:22 PM

I began in September 2008.

BTW, I forsee as many consecutive “lost decades” for the US as Japan has/will experience (they’re working on Lost Decade III).

Steve Eggleston on June 26, 2013 at 1:30 PM

Which rounds up to 1.8%.

The deflator this time around is 1.3. Who here believes that annualized inflation is only 1.3%?

Steve Eggleston on June 26, 2013 at 12:36 PM

Yes, it does. Real inflation? yeah it’s a wee bit higher than 1.3.

dogsoldier on June 26, 2013 at 1:33 PM

But they should be using the quarterly deflator…

http://www.consumerindexes.com/

For this set of revisions the BEA assumed annualized net aggregate inflation of 1.26%. In contrast, during the first quarter (i.e., from December to March) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) rose by 2.10% (annualized), and the price index published by the Billion Prices Project (BPP) rose at an annualized rate of 5.35%. As a reminder: an understatement of assumed inflation increases the reported headline number — and in this case the BEA’s relatively low “deflater” boosted the published headline rate. If the CPI-U had been used to convert the “nominal” GDP numbers into “real” numbers, the reported headline growth rate would have been a much more modest 0.96%. And if the BPP index (which arguably best reflects the experiences of the American consumer) had be used as the “deflater,” the economy would have been reported to have been contracting at a -2.30% annualized rate.

dogsoldier on June 26, 2013 at 1:36 PM

dogsoldier on June 26, 2013 at 1:36 PM

The ready-made counter-arguments:

- The BLS uses a “chained” measure of inflation on GDP, while the CPI-U and the BPP measure are “unchained”. In short, chaining reduces the amount of “raw” inflation by the amount that is no longer purchased.

- The GDP also includes business purchases in its measure, which is not reflected in either CPI-U or BPP.

While those factors have historically led the deflator to lag a bit behind CPI-U, the recent lag has been historically large.

Steve Eggleston on June 26, 2013 at 2:08 PM

Ain’t Obamanomics WONDERFUL?

And just wait until electrical rates start to soar!

GarandFan on June 26, 2013 at 2:14 PM

The fed has been printing $85 billion per month – over $1 trillion per year.

GDP grew by only 1.8% – roughly $0.28 Trillion per year.

Not much bang for their buck.

agmartin on June 26, 2013 at 2:21 PM

One sure-fired way to improve consumer spending is to not allow government to tax the living blazes out of everything at every stage of production and distribution.

Turtle317 on June 26, 2013 at 11:17 AM

They’ve been doing this forever. The difference, I suppose, is that for most of that time the economy was strong enough to shrug it off…we’ve just gotten used to it. Look at how many people still don’t want to do away with the IRS even though now there’s at least a little hope of doing so.

But as the economy has grown weaker, these taxes hurt way more.

Something else has led to a weaker economy, not the taxation.

Dr. ZhivBlago on June 26, 2013 at 2:42 PM

Of course we could go down the Eurocommie path and have King Putt and his minions of mental midgets start pushing for a Value Added Tax. Say it with me now … V_A_T, there isn’t that easy?

Yep, he ‘laser focused’ on creating jobs. Or as was alluded too earlier in this thread … using the laser to cut up what functional pieces of our economy are still wiggling with any life.

The winner after the next 1290 days will be James Earl Carter who will no longer be considered THE WORST PRESIDENT evah!

Missilengr on June 26, 2013 at 3:38 PM

The fed has been printing $85 billion per month – over $1 trillion per year.

GDP grew by only 1.8% – roughly $0.28 Trillion per year.

Not much bang for their buck.

agmartin on June 26, 2013 at 2:21 PM

Right thought, wrong math because QE-Forever is in current dollars. For that comparison, one needs to use nominal GDP, also in current dollars. That’s still only $0.49 trillion per year, less than half the money pumped in by QE-Forever.

Steve Eggleston on June 26, 2013 at 5:50 PM

Troll-free!!!

CW on June 26, 2013 at 7:11 PM

Re:MNHawk,
I am in Grants Pass , Or,
You just made me spew my red wine all over the bar.
Excellent.
I’ve lived that life….when I was 21.
Look in’ forward to what BO has dialed in for my retirement.
Not really, considering doing a slow ash out and leaving the Country I love.

Whiterock on June 26, 2013 at 10:03 PM