Q1 GDP Revised Down

The government revised its estimate for first-quarter GDP growth this morning and it was bad news. Instead of growing by 2.2% as was initially reported one month ago, the government now says that the economy grew by just 1.9% for the first three months of the year.

This means that the economy is barely above its peak from late 2007. Over the last 17 quarters, the U.S. economy has grown by just 1.24% in real terms.

The report also showed that after-tax corporate profits dropped for the first time in three years.

A modest downward revision to consumer spending, which accounts for about 70 percent of economic activity, and stronger import growth also accounted for the weaker first-quarter output. Economists polled by Reuters had expected growth would be revised down to a 1.9 percent pace.

Business inventories increased $57.7 billion, instead of $69.5 billion, adding only 0.21 percentage point to G.D.P. growth, compared with 0.59 percentage point in the previous estimate.

While the small inventory buildup held back growth in the January-March quarter, restocking of shelves, retreating gasoline prices and an improving housing market should bolster output in the second quarter.

I’m not sure why this is, but looking at the rolling six-quarter growth of the economy gives you the clearest appearance of a trend. The six-quarter growth rate has now trended downward for five quarters in a row.

Before the Great Recession, economists spoke of the Great Moderation. This refers to the fact that the booms and busts of the economy from 1982 to 2007 were much smaller than what we saw before.

But the moderation may still be with us, just at a lower level. The standard deviation of quarterly GDP growth for the last seven quarters is among the lowest ever recorded.

Posted by on May 31st, 2012 at 9:44 am

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