From the US Bureau of Economic Analysis last night comes the the final Q! GDP figure and it’s a doozy, falling to -2.9% annualised from the previous -1%:
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 …
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.
Morgan Stanley depressed about it:
We caution against reading too much into the weakness, as it is clear that special factors during the quarter distorted growth. The severe winter weather weighed heavily on consumption, fixed investment and trade. Furthermore, there was a notable inventory drawdown that amounted to a 1.7pp drag on growth, following two strong quarters of inventory build in 3Q and 4Q of 2013. Despite the deeper contraction in this final release, we are not revising 2Q GDP growth. We continue to expect a 4.0% rebound in the second quarter, and the recent data suggest that we are headed in that direction. However, uncertainty around this number remains elevated: there could continue to be special factors at play stemming from the weakness in 1Q. Moreover, benchmark GDP revisions, released with the first estimate of 2Q GDP in July, could alter the trajectory.
Assuming 4.0% growth in 2Q and solid 3.0% growth in 2H, growth will still only average 1.7% this year. It certainly was not the start of the year we were hoping for.
But Goldman likes it:
BOTTOM LINE: Q1 GDP was revised down even more than expected, mainly due to lower-than-expected healthcare spending. The May durable goods report was a bit weaker than expected, although inventories rose more than expected. We increased our Q2 GDP tracking estimate by two-tenths to 4.0%.
1. Q1 GDP was revised to -2.9% in the third estimate (vs. consensus -1.8%), from -1.0% previously. The downward revision was concentrated in two categories: healthcare spending subtracted 1.2 percentage points (pp) relative to the second estimate, while net exports subtracted 0.6 pp. All other components of GDP combined contributed a further one-tenth to the revision. We had anticipated downward revisions to both healthcare spending and net exports—in particular in light of the weak healthcare numbers in the Q1 Quarterly Services Survey—but the extent of these revisions was larger than we expected. As we noted in yesterday’s US Daily, we think that Q1 GDP was an aberration, and is not representative of the strengthening underlying trend in US growth.
2. Headline durable goods orders fell 1.0% in May (vs. consensus flat). Within the typically volatile categories, a large decline in defense orders (-31.4%) and a modest decline in non-defense aircraft (-4.0%) pulled down the headline figure. Core capital goods orders rose 0.7% (vs. consensus +0.5%) and core capital goods shipments—used by the Commerce Department to calculate the equipment investment component of the GDP report—rose 0.4% (vs. consensus +1.0%) in May. Growth in durable manufacturing inventories grew 1.0% in May and was revised up two-tenths to 0.3% in April.
3. We increased our Q2 GDP tracking estimate by two-tenths to 4.0%.
They both have the same forecast of course. There is no “strengthening underlying trend”. There is only the corrosive wait for enough folks to drop out of the workforce for interest rates to begin to rise. There is a difference.
