Thursday, May 29, 2014

Revisions to First Quarter GDP

The headline number for this morning's GDP report was that the economy shrank by 1% (compared to an initial estimate of growth of 0.1%).  What was responsible for the revision?  Almost the entire revision was due to a decline in inventory investment, which subtracted 1.6% from economic growth compared to an initial estimate of 0.6%.  So final sales (growth excluding inventories) declined from 0.7% to 0.6%.  This is actually good news for future growth since companies have less inventory on hand, increases in demand are more likely to result in increases in production.  Most of the other details of the report are similar to initial estimates (see previous post) - positives include a record contribution from healthcare due to Obamacare and a sizeable contribution from utilities due to the harsh winter while minuses include weak construction (likely due to the harsh winter) and weakness in business investment and exports (some payback from unsustainably strong exports in late 2013).