Boom: Q1 GDP revised downward to -1.0%

posted at 9:09 am on May 29, 2014 by Ed Morrissey

For the first time in three years, the American economy contracted over the course of a quarter. In the interim report on GDP, the BEA estimates that the US economy shrunk by a full point in 2014 Q1, a downward revision of the advance estimate of 0.1% growth:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 1.0 percent in the first quarter according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent.

The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, real GDP was estimated to have increased 0.1 percent. With this second estimate for the first quarter, the decline in private inventory investment was larger than previously estimated (see “Revisions” on page 3).

The decrease in real GDP in the first quarter primarily reflected negative contributions from private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures. Imports, which are a subtraction in the calculation of GDP, increased.

Don’t blame federal budget cuts for this contraction, or the weather either. Federal government spending rose 0.7% after dropping 12.8% in Q4, although state government spending fell by 1.8%.  Exports fell by 6.0%, a sharp drop in any sense and a remarkable reversal from +9.5% in Q4, and real non-residential fixed investment dropped 1.6%.

Not all of the news was bad, though. Real personal consumption expenditures (consumer spending) rose 3.1% in Q1, almost the same level as in Q4 (3.3%). The real final sales of domestic product, which are sales to end-user consumers, rose 0.6% — much lower than Q4’s 2.7%, but still positive. However, growth in real gross domestic purchases was entirely flat (0.0%) after a stagnation reading in Q4 of 1.6%.

CNN rushed to cheer everyone up by proclaiming the “expected” nature of the slump:

Brace yourself. The U.S. economy looks like it went on a roller-coaster ride at the start of the year.

Revised numbers released Thursday show the economy shrunk in the first quarter, marking the first downturn since early 2011. Gross domestic product, the broadest measure of economic growth, fell at a 1% annual pace, according to the Bureau of Economic Analysis.

A slump was entirely expected, and economists aren’t too worried. They expect a sizeable bounce back in the spring.

CNBC’s Rick Santelli isn’t as sanguine, and certainly isn’t banking on the 4% growth number for the rest of the year cited in CNN’s report:

Reuters chalks it up to — what else? — cold weather:

The U.S. economy contracted in the first quarter for the first time in three years as it buckled under the weight of a severe winter, but there are signs activity has since rebounded.

The Commerce Department on Thursday revised down its growth estimate to show gross domestic product shrinking at a 1.0 annual rate.

It was the worst performance since the first quarter of 2011 and reflected a far slower pace of inventory accumulation and a bigger than previously estimated trade deficit. …

The decline in output, which also reflected a plunge in business spending on nonresidential structures, was sharper than Wall Street’s expectations. Economists had expected the revision to show GDP contracting at a 0.5 percent rate.

There have been indicators of better growth in Q2, but nothing that would indicate a 4% growth rate for the rest of 2014. There is more hampering the US economy than just a cold winter. This is part of the continuing cycle of stagnation seen since the June 2009 recovery, and there are no indications that we are breaking that cycle now. This report should be a sign that we’re getting more fragile, not gaining strength.

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