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Economy in Brief

U.S. GDP Shortfall Revised to 2.9% in Q1; Largest Decline Since the Recession
by Tom Moeller  June 25, 2014

Real GDP was revised to a 2.9% annual rate of decline in Q1 (+1.5% y/y) following a 1.0% drop reported last month. It was the largest decline in five years and compared to a 1.8% drop in the Action Economics Forecast Survey. Consumer spending growth was revised sharply lower while foreign trade subtracted more than previously estimated. The 1.3% rise (1.4% y/y) in the chain-type price index was unrevised.

Growth in personal consumption expenditures was reduced sharply to 1.0% (2.0% y/y) from 3.1% estimated last month. The source of the revision was medical care outlays which now show a 1.4% decline (+2.6% y/y), previously estimated at +9.1%. This lessened overall services growth to 1.5% (1.7% y/y) from 4.3%. Growth in durable goods outlays was revised to 1.2% (4.5% y/y) from 1.4% and nondurable goods outlays now show a 0.3% decline (+1.8% y/y) instead of the 0.4% increase estimated last month.

Elsewhere, final demand growth rates were little-changed. Business investment growth was revised to a negative 1.2% (+3.5% y/y) from -1.6%. Equipment spending declined at a 2.8% rate (+2.8% y/y), instead of at a 3.1% rate, and structures spending fell 7.7% (+4.9% y/y), not 7.5%. Residential investment now shows a 4.2% decline (+2.7% y/y), not a 5.0% shortfall. Government spending was unchanged showing a 0.8% rate of decline (-1.5% y/y). National defense declined at a 2.5% rate (-4.7% y/y). Spending by state & local governments fell at a 1.7% rate (+0.1% y/y).

Foreign trade subtracted 1.5 percentage points from GDP growth, revised from a 1.0 point subtraction reported last month. Exports fell at an 8.9% rate (+2.8% y/y), revised from -6.0%, and imports rose at a 1.8% rate (3.1% y/y), not 0.7%. Inventories reduced GDP growth by a little-changed 1.7 percentage points.

The total GDP chain price index rose at a 1.3% pace (1.4% y/y), the same as before, and the total PCE price index was up at a 1.4% pace (1.4% y/y). The PCE price index less food and energy was up 1.2% (1.1% y/y) and the business investment price index rose 1.1% (1.2% y/y).

Pretax profits without IVA and CCA rose an upwardly-revised 1.3% q/q (7.9% y/y) following three consecutive quarters of 2.1% gain. After-tax profits ticked 0.1% higher q/q (6.8% y/y), the weakest result in a year. With IVA & CCA, before-tax profits fell 9.1% q/q (-2.2% y/y) as earnings of nonfinancial corporations fell 8.0% q/q (-2.7% y/y. Financial sector profits fell 15.1% q/q (-7.2% y/y) and foreign sector earnings fell 5.8% q/q (+4.6% y/y).

The latest GDP figures can be found in Haver's USECON and USNA databases; USNA contains basically all of the Bureau of Economic Analysis' detail in the national accounts, including the integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

Household Expectations and Monetary Policy from the Federal Reserve Bank of San Francisco can be found here.

Chained 2009 $, %, AR Q1'14 (3rd Estimate) Q1'14 (2nd Estimate) Q1'14 (Advance) Q4'13 Q3'13 Q1 Y/Y 2013 2012 2011
Gross Domestic Product -2.9 -1.0 0.1 2.6 4.1 1.5 1.9 2.8 1.8
  Inventory Effect -1.7 -1.6 -0.6 -0.0 1.7 0.0 0.2 0.2 -0.2
Final Sales -1.3 0.6 0.7 2.7 2.5 1.5 1.7 2.6 2.0
  Foreign Trade Effect -1.5 -1.0 -0.8 1.0 0.1 -0.1 0.2 0.2 0.2
Domestic Final Sales 0.3 1.6 1.5 1.6 2.3 1.6 1.5 2.4 1.8
Demand Components
Personal Consumption Expenditures 1.0 3.1 3.0 3.3 2.0 2.0 2.0 2.2 2.5
Business Fixed Investment -1.2 -1.6 -2.0 5.7 4.8 3.5 2.7 7.3 7.6
Residential Investment -4.2 -5.0 -5.8 -7.9 10.3 2.7 12.2 12.9 0.5
Government Spending -0.8 -0.8 -0.5 -5.2 0.4 -1.5 -2.3 -1.0 -3.2
Chain-Type Price Index
GDP      1.3 1.3 1.3 1.6 2.0 1.4 1.4 1.7 2.0
Personal Consumption Expenditures 1.4 1.4 1.4 1.1 1.9 1.1 1.1 1.8 2.4
 Less Food/Energy 1.2 1.2 1.3 1.3 1.4 1.1 1.2 1.8 1.4
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