U.S. GDP Revision: Analysis from Miller Tabak

As expected the economy grew at a marginally slower pace than was initially forecast in the three months through March. The consumer added a little less to the mix while the rebound in inventories was also lighter and the drag from the government sector was heavier than earlier forecast.  

The annualized pace of growth in the first quarter was 1.9% and down from the first estimate of 2.2%. The decline was in-line with estimates ahead of the data and represents a dip from the racier fourth-quarter pace at 3%.

The bad news is not necessarily inside the report but comes in the form of what we are learning about the employment picture. The pace of consumer spending was revised lower and contributed 1.9% to the growth rate. Stronger spending ahead is reliant on improvement in the labor market and most likely a better performance than a slew of reports today depicts. Improvements in growth have been predicated on a thawing of frozen consumer confidence and a steadily improving series of payroll numbers.

On the bright side the fact that inventories were rebuilt at a slower pace than at first thought in the first quarter might mean a boost to current quarter growth. Inventories added 0.2% through March rather than an earlier reported 0.6%.

Government expenditures restrained growth by 0.8% and more than the originally reported 0.6%.

The investment side of the equation still creates a sense of alarm. While residential investment spending rose between quarters from 0.03% to 0.41% the non-residential spend fell back into the doldrums adding 0.2% following a pace of 1.5% in the three months through December. Specifically, spending on structures reduced output by 0.1% (was 0.37 in Q4) while spending on equipment fell adding just 0.3% to GDP rather than its fourth quarter contribution of 1.1%.   

Steven Karsh