Thursday, May 27, 2010

GDP Growth Revised Downward to 3.0%; Consumption Main Driver of Change

First quarter real GDP growth was revised downward somewhat to 3.0% annualized from the rate of 3.2% growth that was initially reported. Most of the downward revision was due to downward revision ofconsumption expenditures. Consumption added 2.4% to GDP, rather than 2.6%, as was first reported. Inventory accumulation was also revised downward; however, government expenditures and net exports were revised upward.

Even with the revision, growth over the quarter was reasonably solid, particularly consumption. However, this is rather slow growth when compared to recoveries of past deep downturns where growth rates averaged between six and nine% for the year immediately following recession. Furthermore, a large portion of growth over the past few quarters has been due to inventory accumulation; in the first quarter 1.7% of the 3.0% growth was due to this factor. Though inventories add to growth as any other component does, the effect will prove to be temporary if final demand does not begin to pick up further. Real final sales, which removes inventory effects and therefore measures only current demand, grew by a lesser 1.3% over the quarter. This will have to accelerate before there is enough aggregate demand to drive strong job growth.

10.05.27 (Source: Bureau of Economic Analysis)

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