Friday, June 25, 2010

GDP Growth Revised Downward to 2.7% – Final Sales Growth Down to 0.8%

First quarter real GDP growth was revised downward to 2.7% annualized from the previously reported 3.0% growth rate. Most of the downward revision was due to consumption expenditures being revised downward. Consumption added 2.1% to GDP, rather than 2.4% earlier reported. Net exports and non-residential fixed investment were also revised down slightly, but this was offset by an upward revision to business inventory investment.

Inventory accumulation has been the primary driver of growth the past three quarters. With the downward revision to overall growth, this factor has only increased in importance. Real final sales, which strips out the effects of inventory changes in order to measure current demand was revised downward to 0.8% from 1.3%. This was the slowest pace of growth since Q2 of 2009.

Though inventories add to growth as any other component does, the effect is likely only temporary as firms have had to readjust their inventories during the early stages of recovery. With evidence showing that the bulk of the inventory adjustment period is behind us, it is likely that going forward, future GDP growth numbers will be much more in line with the corresponding final sales number.

10.06.25 (Source: Bureau of Economic Analysis)

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