Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 0.1 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014), according to the “advance” estimate released by the Bureau of Economic Analysis.
The increase in real GDP in the first quarter primarily reflected a positive contribution from personal consumption expenditures (PCE) that was partly offset by negative contributions from exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
The advance Q1 GDP report, with 0.1% annualized growth, was below expectations of a 1.1% increase. Personal consumption expenditures (PCE) increased at a 3.0% annualized rate – a solid pace.
However the the change in inventories subtracted 0.57 percentage points from growth in Q1, exports subtracted 0.83 percentage points, and both non-residential and residential investment were negative.
The first graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005.
The drag from state and local governments (red) appeared to have ended last year after an unprecedented period of state and local austerity (not seen since the Depression). However State and local governments subtracted from GDP in Q1.
Overall I expect state and local governments to continue to make a small positive contributions to GDP in 2014.
The blue bars are for residential investment (RI). RI added to GDP growth for 12 consecutive quarters, before subtracting in Q4 2013 and Q1 2014. However since RI is still very low, I expect RI to make a positive contribution to GDP in 2014.
I’ll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker’s commissions, and a few minor categories.
I’ll add details for investment in offices, malls and hotels next week.
Overall this was a weak report, although PCE growth was decent. Private investment (even excluding the change in inventories) was negative, and that is the key to more growth going forward.