Details on the Revision of 1st Quarter GDP from -0.7% to -0.2%

The Third Estimate of 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services contracted at a 0.2% annual rate in the 1st quarter, revised from the 0.7% contraction rate reported in the second estimate last month, as fixed investments, exports, and government outlays decreased less than previously estimated, while personal consumption expenditures (PCE) and imports increased more than was reported last month.  The GDP deflator, or inflation adjustment, was also revised, from a negative 0.18% to a negative 0.04%, which is reported as unchanged, and as a result current dollar GDP also shrunk at the same 0.2% rate as real GDP did, falling from what would be $17,703.7 billion a year in the 4th quarter to $17,693.3 billion annually in the 1st quarter. Although this 3rd estimate is usually thought of as the final reading on the quarter's GDP, it will again be subject to revision on July 30th with the Annual Revision of the National Income and Product Accounts which will be released at that time..

While we cover the details below, remember that the press release for GDP 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 over the 3 month period, and that they only use the prefix "real" to indicate that the data or the change in it has been adjusted for inflation using prices chained from 2009, and then they calculate all percentage changes in this report from those nonsense 2009 dollar figures, which would be better thought of as a quantity indexes.  Given the misunderstanding evoked by the press release, all the data that we'll use in reporting on this estimate comes from the pdf for the 3rd estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release. Specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2012, 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 inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts.  For comparison purposes, the pdf for the 2nd estimate is here, and Robert’s coverage of it is here..

Real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 2.1% annual rate rather than the 1.8% growth rate reported last month, and since the 1st quarter deflator for PCE was negative 2.0%, that means personal spending in current dollars increased at a 0.1% rate rather than decreased.  Consumption of real durable goods rose at a 1.3% annual rate, which was revised from a 1.1% rate in the 2nd estimate, and added 0.10 percentage points to GDP, as real output of automotive products consumed fell at a 4.1% rate and offset 4.0% growth in recreational goods and vehicles.  Real consumption of nondurable goods rose at a 0.8% annual rate, revised from the 0.1% increase reported in the 2nd estimate, and added 0.12 percentage points to 1st quarter growth, as real consumption of food and clothing both decreased, offsetting a 5.7% increase in consumption of gasoline & other fuel.  In addition, real consumption of services rose at a 2.7% annual rate, revised from the 2.5% rate reported last month, and added 1.21 percentage points to the final GDP tally. Almost all of that was in the increases posted by real consumption of health care and of utilities in the colder than normal winter, while recreation services, consumption expenditures of nonprofit institutions serving households, and 'other' consumer services all shrunk during the quarter..

In part due to the upward revision of real private inventories, seasonally adjusted real gross private domestic investment grew at a 2.4% annual rate in the 1st quarter, revised from the 0.7% growth estimate made last month, while the contraction in private fixed investment was revised from -1.3% to -0.3% and hence only subtracted 0.05 percentage points from the quarter's growth rate, rather than 0.21 percentage points subtraction estimated last month.  Real non-residential fixed investment fell at a 2.0% rate, rather than the 2.8% decrease previously estimated, as the contraction in investment in non-residential structures was revised up from a drop at a 20.8% rate to a drop at a 18.8% rate, which was still largely due to a near 50% pullback in oilfield construction over the quarter; by itself, that decrease in structures subtracted 0.60 percentage points from the 1st quarter change in GDP.  Meanwhile, investment in equipment grew at a 2.6% rate, revised from the 2.7% rate previously reported, while growth in investment in intellectual property products was revised up, from growth at a 3.6% rate to growth at a 4.9% rate.  Growth in residential investment was also revised up from a 5.0% rate to 6.5% growth.  After those revisions, investment in equipment added 0.15 percentage points to the 1st quarter growth rate, investment in intellectual property added 0.19 percentage points, while growth in residential investment added 0.21 percentage points to 1st quarter GDP...

Meanwhile, real private inventories were revised from the $95.0 billion real growth rate estimated last month to now show inventory growth at an inflation adjusted $99.5 billion rate, which comes after inventories had grown at a $80.0 billion rate in the 4th quarter.  Hence the $19.5 billion greater inventory growth added 0.45 percentage points to the 1st quarter's growth rate, in contrast to the 0.33 percentage point addition from inventory growth that was reported in the 2nd estimate.  Since inventories indicate that some of the goods produced during the quarter are still sitting on the shelf, their increase by $19.5 billion means real final sales of GDP were lower by that much, and hence decreased at a 0.6% annual rate in this report, revised from the real final sales decrease at a 1.1% annual rate that was reported with the lower GDP estimate of last month.

The previously reported decrease in real exports was revised lower while the increase in real imports was revised higher by nearly the same amount, and hence the impact from trade figures was little changed in the revision.  Remember, our exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increased imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here.  Our real exports fell at a 5.9% rate rather than the 7.6% contraction reported in the 2nd estimate, but still subtracted 0.79 percentage points from 1st quarter GDP growth, down from 1.03 percentage points in the previous estimate..  Meanwhile, the real growth rate of our imports was revised to 7.1% from the previously reported 5.6% growth rate and subtracted 1.10 percentage points from the quarter's growth rate, an increase from the 0.87.percentage points subtracted in the 2nd estimate.  Hence the 1.89 percentage points subtracted as a result of our increased  trade imbalance were greater than the additions in the other GDP components, and were largely responsible for the 0.2% contraction in 1st quarter GDP reported here.

Finally, there were also minor revisions to real government consumption and investment in this 3rd estimate.  Real federal government consumption and investment was revised to unchanged from the 0.1% growth rate reported in the 2nd estimate, and hence added nothing to 1st quarter GDP.  Real federal spending for defense was revised to show contraction at a 1.2% rate rather than the 1.0% contraction previously reported, while all other federal consumption and investment grew at a 2.0% rate, which was unrevised from last month.  The contraction in real state and local outlays, on the other hand, was revised lower, from the 1.8% shrinkage rate previously reported to contraction at a 1.0% rate, which subtracted 0.12 percentage points from GDP, down from the 0.21 percentage point subtraction indicated by the 2nd estimate..

(this was cross-posted from MarketWatch 666)

Subject Meta: 

Forum Categories: