Wednesday, June 25, 2014

First Quarter Growth Plunged, Declined 2.9% in Final Estimate

GDP fell sharply in the first quarter, according to the BEA’s final estimate. GDP declined by 2.9%, the largest quarterly decline since 2009, the peak of the recession. The downward revision was driven primarily by a larger inventory correction, an increased trade deficit and sluggish consumer spending. While the downward revision was anticipated, the decline wasn’t expected to be so drastic.

The harsh winter impacted first quarter GDP growth by keeping consumers home. Moreover, an inventory correction that was expected to take a few quarters took place entirely in the first quarter. These two factors contributed to negative GDP growth. Data already released from the second quarter show a positive picture with stronger growth, as a result GDP should rebound in the second quarter.

Consumption, a key driver of GDP growth, was weak in the first quarter, contributing 0.7% to GDP, a revision from the 2.1% seen in the second estimate. Inventories also corrected more than originally estimated, weighing 1.7% on GDP. Inventories tend to be highly volatile. Net exports caused a 1.5% drag on the economy in the first quarter. The government drag remained similar from the second estimate.

Read the BEA release.

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