Thursday, May 26, 2011

Unrevised GDP Figure Disappoints

Economic growth remains anemic with the year-over-year GDP growth well lower than 3%, a rate that is believed to be the critical to sustainable improvement in the job market.

From Wall Street Journal

The economy did not get the hoped for upgrade for the start of the year. The Commerce Department's second estimate for quarter GDP growth was unrevised at up 1.8 percent annualized and came in lower than the consensus forecast for 2.1 percent. The first quarter remains notably softer than the 3.1 percent pace in the fourth quarter.

Unfortunately, demand numbers were nudged down and inventory investment bumped up. Final sales of domestic product were revised to an annualized 0.6 percent from the initial estimate of 0.8 percent. Final sales to domestic purchasers were revised to 0.7 percent from the original estimate of 0.9 percent annualized. The downward revision to final sales was mainly in personal spending, now at up 2.2 percent instead of the initial 2.7 percent for the first quarter.

For overall relative strength (not merely the direction of revisions), PCEs growth remained moderately healthy. Also, business investment in equipment & software is strong. Inventory investment is positive but levels are still low. Weakness remained in government purchases, nonresidential structures, and net exports.

Even though the headline number was disappointing, odds are that growth will not slow further in coming quarters. Momentum is still favorable for consumer spending, equipment investment, exports, and inventories.

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