Revised 1st Quarter GDP Report Still Shows Growth at a 6.4% Rate

“Revised 1st Quarter GDP Report Still Shows Growth at a 6.4% Rate,” Marketwatch 666, Commenter RJS and analyst

The Second Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 6.4% rate in the 1st quarter, unchanged from the 6.4% growth rate reported in the advance estimate last month, as upward revisions to growth of real personal consumption expenditures and to growth of real fixed investment were offset by downward revisions to inventories, to state and local government investment, and to exports, and by an upward revision to imports, which subtract from GDP…..in current dollars, our first quarter GDP grew at a 10.96% annual rate, increasing from what would work out to be a $21,494.7 billion a year output rate in the 4th quarter of last year to a $22,061.0 billion annual rate in the 1st quarter of this year, with the headline 6.4% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 4.3%, aka the GDP deflator, was computed from the price changes of the components and applied to their current dollar change….

As we review this month’s revisions, remembe this release reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over 4 times of that what actually occurred from one 3 month period to the next, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes now chained from 2012, and then that all percentage changes in this report are calculated from those 2012 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts…for our purposes, all the data that we’ll use in reporting the changes here comes directly from the Full Release & Tables for the second estimate of 1st quarter GDP, which is linked to on the BEA’s main GDP page . . . specifically, we’ll be using table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2017; table 2, which shows the contribution of each of the components to the GDP figures for those months and years; table 3, which shows both the current dollar value and the inflation adjusted value in 2012 dollars of each of those components; and table 4, which shows the change in the price indexes for each of the GDP components…the full pdf for the 1st quarter advance estimate, which this estimate revises, is here….

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 10.7% growth rate reported last month to indicate real PCE growth a 11.3% rate with this estimate…that growth figure was arrived at by deflating the 15.5% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 3.7% annual rate in the 1st quarter, which was revised from the 3.5% PCE inflation rate published a month ago….real consumption of durable goods grew at a 48.6% annual rate, which was revised from the 41.4% growth rate shown in the advance report, and added 3.40 percentage points to GDP, as growth in real consumption of vehicles and parts at a 66.2% rate accounted for more than a third of the quarter’s growth in durable goods….real consumption of nondurable goods by individuals rose at a 14.0% annual rate, revised from the 14.4% increase reported in the 1st estimate, and added 1.95 percentage points to 1st quarter economic growth, as increased real consumption of food and clothing accounted for more than two-thirds of the growth in nondurable goods….at the same time, consumption of services rose at a 4.6% annual rate, unchanged from the growth rate reported last month, and added 2.06 percentage points to the final GDP tally, as a 26.6% real growth rate of food services and accommodations accounted for more than 42% of the quarter’s growth in services….

At the same time, seasonally adjusted real gross private domestic investment shrunk at a 4.7% annual rate in the 1st quarter, revised from the 5.0% contraction rate estimate reported last month, as real private fixed investment grew at a 11.3% rate, rather than at the 10.1% rate reported in the advance estimate, while inventory shrinkage was somewhat greater than had been previously estimated….real investment in non-residential structures was revised from shrinking at a 4.8% rate to shrinking at a 5.8% rate, while real investment in equipment was revised to show it grew at a 13.4% rate, revised from the 16.7% growth rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised from real growth at a 10.1% rate to real growth at a 16.9% rate…meanwhile, growth in real residential investment was revised from a 10.8% annual rate to growth at a 12.7% rate…after those revisions, the contraction in investment in non-residential structures subtracted 0.15 percentage points from the increase in 1st quarter GDP, while the increase in investment in equipment added 0.76 percentage points to the quarter’s growth, the increase in investment in intellectual property added 0.78 percentage points, and the increase in residential investment added 0.57 percentage points to the 1st quarter’s growth rate..

Meanwhile, the drop in real private inventories was revised from the originally reported $85.5 billion in inflation adjusted dollars to show inventories shrunk at an inflation adjusted $92.9 billion rate…this came after inventories had grown at an inflation adjusted $62.1 billion rate in the 4th quarter, and hence the $155.0 billion negative change in real inventories from those of the 4th quarter subtracted 2.78 percentage points from the 1st quarter’s growth rate, revised from the 2.64 percentage point subtraction due to reduced inventory growth shown in the advance estimate . . . however, since shrinking inventories indicates that less of the goods produced during the quarter were left “sitting on the shelf” or in a warehouse, that decrease by $155.0 billion meant that real final sales of GDP were actually greater by that much, and therefore the BEA found that real final sales of GDP grew at a 9.4% rate in the 1st quarter, revised up from the 9.2% growth rate shown in the advance estimate, and up from the real final sales growth rate of 2.9% in the 4th quarter, when the increase in inventory growth meant that the quarter’s growth in real final sales was smaller than that of the quarter’s GDP……

The previously reported decrease in real exports more than doubled with this estimate, while the previously reported increase in real imports was revised higher, and as a result our net trade was a somewhat larger subtraction from GDP rather than was previously reported…our real exports of goods and services shrunk at a 2.9% rate in the 1st quarter, revised from the 1.1% contraction shown in first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their  decrease conversely subtracted 0.29 percentage points from the 1st quarter’s growth rate, up from the 0.10 percentage point subtraction shown last month…meanwhile, the previously reported 5.7% increase in our real imports was revised to a 6.7% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, their increase subtracted 0.91 percentage points from 1st quarter GDP, revised from the 0.77 percentage point subtraction shown a month ago….thus, the deteriorating trade balance that has accompanied the increase in consumer spending subtracted a rounded 1.20 percentage points from 1st quarter GDP, up from the 0.87 percentage point subtraction resulting from a worsening foreign trade balance that was indicated by the advance estimate..

Finally, there was also a downward revision to real government consumption and investment in this 2nd estimate, as the entire government sector is now shown to have grown at a 5.8% rate, revised from the 6.3% growth rate for government indicated by the 1st estimate….however, real federal government consumption and investment is still seen to have grown at a 13.9% rate from that of the 4th quarter in this estimate, which was unchanged from the growth rate shown in the 1st estimate, as real federal outlays for defense shrunk at a 3.4% rate, unrevised from the previously reported contraction rate, and subtracted 0.14 percentage points from 1st quarter GDP, while all other federal consumption and investment grew at an unrevised 44.8% rate and added 1.07 percentage points to GDP….meanwhile, real state and local consumption and investment grew at a 0.8% rate in the quarter, revised from the 1.7% growth shown in the 1st estimate, and added 0.09 percentage points to 1st quarter GDP, which was revised from the 0.19 addition shown in the advance estimate, as state and local investment shrunk at a 9.2% rate and accounted for three-fifths of the downward revision……note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thereby indicating an increase in the output of those goods or services…