GDP Q1 Third Estimate Plunges to -2.9%

June 25, 2014

by Doug Short

The Third Estimate for Q1 GDP, to one decimal, came in at -2.9 percent (rounded from -2.93 percent), a substantial downward revision from -1.0 percent in the Second Estimate and a major plunge from the 2.6 percent of Q4. The Third Estimate of the GDP deflator used to calculate real (inflation-adjusted) GDP remained unchanged at 1.3 percent. Investing.com had forecast -1.7 percent for today's GDP estimate and the deflator to remain unchanged at 1.3 percent.

The general consensus among economists was a downward revision. However, the official third estimate is worse than even the more pessimistic mainstream economists expected.

Here is an excerpt from the Bureau of Economic Analysis news release:

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 2.9 percent in the first quarter of 2014 according to the "third" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2013, real GDP increased 2.6 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 was estimated to have decreased 1.0 percent. With the third estimate for the first quarter, the increase in personal consumption expenditures (PCE) was smaller than previously estimated, and the decline in exports was larger than previously estimated (for more information, see "Revisions" on page 3).

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

Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).

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Here is a close-up of GDP alone with a line to illustrate the 3.3 average (arithmetic mean) for the quarterly series since the 1947. I've also plotted the 10-year moving average, currently at 1.6 percent, down from 1.7 percent last quarter.

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Here is the same chart with a linear regression that illustrates the gradual decline in GDP over this timeframe.

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A particularly telling representation of slowing growth in the US economy is the year-over-year rate of change.

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And for a bit of political trivia, here is a look at GDP by party in control of the White House and Congress.

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In summary, the Q1 GDP Third Estimate of -2.9 percent was well below forecasts, although it's likely that most mainstream economists will continue to write off the weakness as a transient result of a severe winter. Next month's Advance Estimate of Q2 GDP will be of critical importance for economists expecting a strong economic rebound.

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