The BEA reported this morning that GDP declined at a 1.0% annual rate in Q1. This is disappointing, but not concerning looking forward.
The key driver of the downward revision was a much larger negative change in private inventories (see table below that shows the contribution to GDP from each major category). In the advance release, change in private inventories subtracted 0.57 percentage points from GDP. With the 2nd release – based on more data – change in private inventories subtracted 1.61 percentage point. This was payback from the positive contribution in Q3 last year (change in private inventories tends to bounce around quarter-to-quarter).
There were also downward revisions to investment in nonresidential structure, trade, and state and local government.
PCE was revised up from 3.0% to 3.1% in Q1 (annualized growth rate), and the contribution from PCE to GDP increased slightly.
This weakness will not continue – growth has already picked up in Q2. And I expect both residential investment and state and local governments to add to growth soon. And even investment in nonresidential structures should turn positive.
The growth story is intact. No worries.
| Revision: Contributions to Percent Change in Real Gross Domestic Product | |||
|---|---|---|---|
| Advance | 2nd Release | Revision | |
| GDP, Percent change at annual rate: | 0.1 | -1.0 | -1.1 |
| PCE, Percentage points at annual rates: | |||
| Personal consumption expenditures | 2.04 | 2.09 | 0.05 |
| Investment, Percentage points at annual rates: | |||
| Nonresidential Structures | 0.00 | -0.21 | -0.21 |
| Equipment | -0.32 | -0.18 | 0.14 |
| Intellectual property products | 0.06 | 0.19 | 0.13 |
| Residential | -0.18 | -0.16 | 0.02 |
| Change in private inventories | -0.57 | -1.62 | -1.05 |
| Trade, Percentage points at annual rates: | |||
| Net exports of goods and services | -0.83 | -0.95 | -0.12 |
| Government, Percentage points at annual rates: | |||
| Federal Government | 0.05 | 0.05 | 0.00 |
| State and Local | -0.14 | -0.20 | -0.06 |