Story 1: Advanced Estimate of 1st Quarter Real Gross Domestic Product Growth .1% — Obama Recession Begins Blamed on Climate Change — Winter — Videos
CNBC Reacts To Disappointing GDP Growth: “Holy Cow,” “Weak,” “We Are Doing A Double Take”
Obama Administration Under Fire By GOP Over Economy
Fixing the GDP by Changing the Definition of GDP
Measuring GDP using the Income Approach and the Expenditure Approach – HD
EMBARGOED UNTIL RELEASE AT 8:30 A.M. EDT, WEDNESDAY, APRIL 30, 2014
BEA 14-18
* See the navigation bar at the right side of the news release text for links to data tables,
contact personnel and their telephone numbers, and supplementary materials.
National Income and Product Accounts
Gross Domestic Product: First Quarter 2014 (advance estimate)
Real gross domestic product -- the output of goods and services produced by labor and property
located in the United States -- increased at an annual rate of 0.1 percent in the first quarter (that is, from
the fourth quarter of 2013 to the first quarter of 2014), according to the "advance" estimate released by
the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent.The Bureau emphasized that the first-quarter advance estimate released today is based on source
data that are incomplete or subject to further revision by the source agency (see the box on page 3 and
"Comparisons of Revisions to GDP" on page 5). The "second" estimate for the first quarter, based on
more complete data, will be released on May 29, 2014.
The increase in real GDP in the first quarter primarily reflected a positive contribution from
personal consumption expenditures (PCE) that was partly offset by negative contributions from exports,
private inventory investment, nonresidential fixed investment, residential fixed investment, and state and
local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
BOX___________
Annual Revision of the National Income and Product Accounts
The annual revision of the national income and product accounts will be released along with the
"advance" estimate of GDP for the second quarter of 2014 on July 30. In addition to the regular revision
of estimates for the most recent 3 years and the first quarter of 2014, GDP and select components will be
revised back to the first quarter of 1999 (see the Technical Note). The August Survey of Current
Business will contain an article that describes the annual revision in detail.
FOOTNOTE______
NOTE. Quarterly estimates are expressed at seasonally adjusted annual rates, unless otherwise
specified. Quarter-to-quarter dollar changes are differences between these published estimates. Percent
changes are calculated from unrounded data and are annualized. "Real" estimates are in chained (2009)
dollars. Price indexes are chain-type measures.
This news release is available on BEA’s Web site along with the Technical Note
and Highlights related to this release.
______________
The deceleration in real GDP growth in the first quarter primarily reflected downturns in exports
and in nonresidential fixed investment, a larger decrease in private inventory investment, a deceleration
in PCE, and a downturn in state and local government spending that were partly offset by an upturn in
federal government spending and a downturn in imports.
The price index for gross domestic purchases, which measures prices paid by U.S. residents,
increased 1.4 percent in the first quarter, compared with an increase of 1.5 percent in the fourth.
Excluding food and energy prices, the price index for gross domestic purchases increased 1.4 percent in
the first quarter, compared with an increase of 1.8 percent in the fourth.
Real personal consumption expenditures increased 3.0 percent in the first quarter, compared with
an increase of 3.3 percent in the fourth. Durable goods increased 0.8 percent, compared with an increase
of 2.8 percent. Nondurable goods increased 0.1 percent, compared with an increase of 2.9 percent.
Services increased 4.4 percent, compared with an increase of 3.5 percent.
Real nonresidential fixed investment decreased 2.1 percent in the first quarter, in contrast to an
increase of 5.7 percent in the fourth. Nonresidential structures increased 0.2 percent, in contrast to a
decrease of 1.8 percent. Equipment decreased 5.5 percent, in contrast to an increase of 10.9 percent.
Intellectual property products increased 1.5 percent, compared with an increase of 4.0 percent. Real
residential fixed investment decreased 5.7 percent, compared with a decrease of 7.9 percent.
Real exports of goods and services decreased 7.6 percent in the first quarter, in contrast to an
increase of 9.5 percent in the fourth. Real imports of goods and services decreased 1.4 percent, in
contrast to an increase of 1.5 percent.
Real federal government consumption expenditures and gross investment increased 0.7 percent
in the first quarter, in contrast to a decrease of 12.8 percent in the fourth. National defense decreased 2.4
percent, compared with a decrease of 14.4 percent. Nondefense increased 5.9 percent, in contrast to a
decrease of 10.0 percent. Real state and local government consumption expenditures and gross
investment decreased 1.3 percent; it was unchanged in the fourth quarter.
The change in real private inventories subtracted 0.57 percentage point from the first-quarter
change in real GDP after subtracting 0.02 percentage point from the fourth-quarter change. Private
businesses increased inventories $87.4 billion in the first quarter, following increases of $111.7 billion
in the fourth quarter and $115.7 billion in the third.
Real final sales of domestic product -- GDP less change in private inventories -- increased 0.7
percent in the first quarter, compared with an increase of 2.7 percent in the fourth.
Gross domestic purchases
Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever
produced -- increased 0.9 percent in the first quarter, compared with an increase of 1.6 percent in the
fourth.
Disposition of personal income
Current-dollar personal income increased $122.0 billion, or 3.5 percent, in the first quarter,
compared with an increase of $78.5 billion, or 2.2 percent, in the fourth. The acceleration in personal
income primarily reflected an acceleration in government social benefits to persons.
Personal current taxes increased $18.9 billion in the first quarter, compared with an increase of
$21.4 billion in the fourth.
Disposable personal income increased $103.1 billion, or 3.3 percent, in the first quarter,
compared with an increase of $57.1 billion, or 1.8 percent, in the fourth. Real disposable personal
income increased 1.9 percent in the first quarter, compared with an increase of 0.8 percent in the fourth.
Personal outlays increased $131.8 billion, or 4.4 percent, in the first quarter, compared with an
increase of $127.0 billion, or 4.3 percent, in the fourth.
Personal saving -- disposable personal income less personal outlays -- was $518.7 billion in the
first quarter, compared with $547.4 billion in the fourth.
The personal saving rate -- personal saving as a percentage of disposable personal income -- was
4.1 percent in the first quarter, compared with 4.3 percent in the fourth. For a comparison of personal
saving in BEA’s national income and product accounts with personal saving in the Federal Reserve
Board’s financial accounts of the United States and data on changes in net worth, go to
www.bea.gov/national/nipaweb/Nipa-Frb.asp.
Current-dollar GDP
Current-dollar GDP -- the market value of the nation's output of goods and services -- increased
1.4 percent, or $60.0 billion, in the first quarter to a level of $17,149.6 billion. In the fourth quarter,
current-dollar GDP increased 4.2 percent, or $176.7 billion.
BOX__________
Information on the assumptions used for unavailable source data is provided in a technical note
that is posted with the news release on BEA's Web site. Within a few days after the release, a detailed
"Key Source Data and Assumptions" file is posted on the Web site. In the middle of each month, an
analysis of the current quarterly estimate of GDP and related series is made available on the Web site;
click on Survey of Current Business, "GDP and the Economy." For information on revisions, see
"Revisions to GDP, GDI, and Their Major Components."
_____________
BEA's national, international, regional, and industry estimates; the Survey of Current Business;
and BEA news releases are available without charge on BEA's Web site at www.bea.gov. By visiting
the site, you can also subscribe to receive free e-mail summaries of BEA releases and announcements.
* * *
Next release -- May 29, 2014 at 8:30 A.M. EDT for:
Gross Domestic Product: First Quarter 2014 (Second Estimate)
Corporate Profits: First Quarter 2014 (Preliminary Estimate)
Comparisons of Revisions to GDP
Quarterly estimates of GDP are released on the following schedule: the "advance" estimate, based on
source data that are incomplete or subject to further revision by the source agency, is released near the end of the
first month after the end of the quarter; as more detailed and more comprehensive data become available,
the "second" and "third" estimates are released near the end of the second and third months, respectively.
The "latest"” estimate reflects the results of both annual and comprehensive revisions.
Annual revisions, which generally cover the quarters of the 3 most recent calendar years, are usually carried
out each summer and incorporate newly available major annual source data. Comprehensive (or benchmark)
revisions are carried out at about 5-year intervals and incorporate major periodic source data, as well as
improvements in concepts and methods that update the accounts to portray more accurately the evolving U.S.
economy.
The table below shows comparisons of the revisions between quarterly percent changes of current-dollar
and of real GDP for the different vintages of the estimates. From the advance estimate to the second estimate (one
month later), the average revision to real GDP without regard to sign is 0.5 percentage point, while from the
advance estimate to the third estimate (two months later), it is 0.6 percentage point. From the advance estimate to
the latest estimate, the average revision without regard to sign is 1.3 percentage points. The average revision
(with regard to sign) from the advance estimate to the latest estimate is 0.3 percentage point, which is larger
than the average revisions from the advance estimate to the second or to the third estimates. The larger average
revisions to the latest estimate reflect the fact that comprehensive revisions include major improvements, such as
the incorporation of BEA’s latest benchmark input-output accounts. The quarterly estimates correctly indicate the
direction of change of real GDP 97 percent of the time, correctly indicate whether GDP is accelerating or
decelerating 72 percent of the time, and correctly indicate whether real GDP growth is above, near, or below trend
growth more than four-fifths of the time.
Revisions Between Quarterly Percent Changes of GDP: Vintage Comparisons
[Annual rates]
Vintages Average Average without Standard deviation of
compared regard to sign revisions without
regard to sign
____________________________________________________Current-dollar GDP_______________________________________________
Advance to second.................... 0.2 0.5 0.4
Advance to third..................... .2 .7 .4
Second to third...................... .0 .3 .2
Advance to latest.................... .3 1.3 1.0
________________________________________________________Real GDP_____________________________________________________
Advance to second.................... 0.1 0.5 0.4
Advance to third..................... .1 .6 .4
Second to third...................... .0 .2 .2
Advance to latest.................... .3 1.3 1.0
NOTE. These comparisons are based on the period from 1983 through 2010.
The US economy came near to stalling in the first quarter after one of the coldest winters on record, raising doubts over whether output will meet the US Federal Reserve’s expectations for 2014.
A surge in healthcare spending was all that kept the economy afloat in the first three months of the year, when annualised growth came in at a miserable 0.1 per cent – well below the 1.1 per cent economists were predicting.
The Fed shrugged off the dismal figures, saying growth had accelerated since the first quarter. It reduced or “tapered” its asset purchases by a further $10bn to $45bn a month, underlining its belief that the underlying economy is still on track despite the spell of weakness.
However, the data raise doubts about the Fed’s 2.9 per cent growth forecast for the whole of 2014.
Exports and investment both fell heavily and the economy would have shrunk if President Barack Obama’s healthcare reform had not led to a record increase in healthcare spending.
“Disappointing news on first-quarter GDP growth, but it was principally due to the weather,” said Paul Ashworth at Capital Economics in Toronto. “We anticipate that second-quarter GDP growth will rebound to 3.5 per cent”
The S&P slipped 0.2 per cent at the start of the day, with technology shares under pressure, but by lunchtime it was slightly higher as markets digested the reasons for the gross domestic product figure. Treasury yields were steady while the dollar remained on the defensive.
Consumption grew at a robust annualised pace of 3 per cent in the first quarter – well ahead of market expectations – and contributed 2 percentage points to overall growth.
But that was offset by a 6.1 per cent annualised fall in investment and a 7.6 per cent fall in exports. Together, they knocked 2 percentage points off total growth so the size of the economy was flat overall.
The main reason for stronger consumption was an unprecedented increase in medical spending – adding 1.1 percentage points to growth – as the expansion of health coverage under the Affordable Care Act began to take effect.
The combination of weather effects and the healthcare changes mean that the initial GDP estimate may be prone to revisions, which often result in big swings in the growth numbers.
On a day packed with economic data, the private payrolls processor ADP said the US economy had added 220,000 private sector jobs in April, ahead of forecasts of 210,000.
The ADP figures will fuel expectations of an acceleration in the official jobs number, due on Friday, which is expected to show total jobs growth of 215,000. The jobs data provide strong evidence that weak GDP in the first quarter did not lead to a total collapse in growth.
Separately, the Bureau of Labour Statistics released its quarterly employment cost index, which showed a rise in wages of just 1.8 per cent in the year to March 2014.
Wage rises are expected to be the first signal of inflation that would force the Fed to raise interest rates, so the subdued reading will encourage the central bank to keep monetary policy looser for longer.
The Fed will not publish economic forecasts this month and there is no press conference from chairwoman Janet Yellen.
There are two reasonable responses to news of the US economy’s dismal 0.1 per cent annualised growth in the first quarter of 2014: either panic, or else curse the vagaries of economic data, and wait for revisions to straighten out the rather jumbled numbers. Consumption came in stronger than expected, while investment and exports were dreadful, making it hard to tell a clear story about the state of the world’s largest economy. Here are five takeaways:
First-quarter gross domestic product is the last release that covers a freezing US winter – all other data from January and February are ancient history now.
Almost every area of weakness could be chalked up to weather: goods consumption, up just 0.4 per cent at an annualised pace, because buyers stayed away from the shops; residential investment, down 5.7 per cent, because of delayed construction; and exports, down 7.6 per cent, because manufacturers could not ship via snow-clogged roads and railways.
More up-to-date data, such as non-farm payrolls, suggests the economy picked up in March and April.
(2) Watch out for revisions and a second quarter rebound
The first release of GDP is always prone to large revisions. This time, though, changes are especially likely. A lot of data are unavailable when the Bureau of Economic Analysis makes its first estimate, so the 0.1 per cent number will be using a lot of figures from January and February, which were hardest hit by the weather, with more numbers from March – which was less affected – still to arrive.
Even if revisions do not move the numbers up, there is likely to be a rebound in the second quarter, as some weather-affected activity was delayed but not lost. Morgan Stanley’s tracking estimate for the second quarter is annualised growth of 3.5 per cent.
It says nothing about the merits of President Barack Obama’s healthcare reform, but if the ACA had not existed, then GDP would have fallen. Healthcare spending contributed a massive 1.1 percentage points to growth, so without it, the headline GDP figure would have been minus 1 per cent.
In the national accounts, expansion of the Medicaid healthcare programme for the poor and subsidies for people buying health insurance count as social benefits, and thus boost personal incomes. When people actually consume health insurance or medical services it counts as consumption and shows up in the main expenditure-based version of GDP.
(4) . . . but that spending may yet be revised away too
The BEA does not actually know yet how much newly insured people are spending on medical care. This is yet another estimate. What the BEA says is: “For preliminary estimates made before the final source data are available, BEA will take account of available information on Medicaid benefits, ACA insurance exchange enrolments, and other related information.”
This suggests the BEA’S estimates of healthcare consumption are heavily influenced by the number of sign-ups on insurance exchanges and theoretical expansions in Medicaid coverage. If actual spending does not match the uncertain estimates, this bit of GDP could be revised down.
(5) It is right to worry, at least a little
All the volatility in the numbers makes it hard to take a clear signal, but all the same, there are reasons to worry in this release. The US Federal Reserve’s economic scenario for 2014 involves an acceleration in growth. Housing and business investment are the components of GDP most likely to bring that.
It is bad news, therefore, to have business investment off by 5.5 per cent at an annualised pace and housing investment down by 5.7 per cent. Even with the hit from the weather, this is more consistent with another year of mediocre 2 per cent growth, than the forecast acceleration towards 3 per cent.
US economy slowed to 0.1 percent growth rate in Q1
By MARTIN CRUTSINGER
WASHINGTON (AP) — The U.S. economy slowed drastically in the first three months of the year as a harsh winter exacted a toll on business activity. The slowdown, while worse than expected, is likely to be temporary as growth rebounds with warmer weather.
Growth slowed to a barely discernible 0.1 percent annual rate in the January-March quarter, the Commerce Department said Wednesday. That was the weakest pace since the end of 2012 and was down from a 2.6 percent rate in the previous quarter.
Many economists said the government’s first estimate of growth in the January-March quarter was skewed by weak figures early in the quarter. They noted that several sectors — from retail sales to manufacturing output — rebounded in March. That strength should provide momentum for the rest of the year.
And on Friday, economists expect the government to report a solid 200,000-plus job gain for April.
“While quarter one was weak, many measures of sentiment and output improved in March and April, suggesting that the quarter ended better than it began,” said Dan Greenhaus, chief investment strategist at global financial services firm BTIG.
Still, the anemic growth last quarter is surely a topic for discussion at the Federal Reserve’s latest policy meeting, which ends Wednesday afternoon. No major changes are expected in a statement the Fed will release. But it will likely announce a fourth reduction in its monthly bond purchases because of the gains the economy has been making. The Fed’s bond purchases have been intended to keep long-term loan rates low.
In its report Wednesday, the government said consumer spending grew at a 3 percent annual rate last quarter. But that gain was dominated by a 4.4 percent rise in spending on services, reflecting higher utility bills. Spending on goods barely rose. Also dampening growth were a drop in business investment, a rise in the trade deficit and a fall in housing construction.
The scant 0.1 percent growth rate in the gross domestic product, the country’s total output of goods and services, was well below the 1.1 percent rise economists had predicted. The last time a quarterly growth rate was so slow was in the final three months of 2012, when it was also 0.1 percent.
Ian Shepherdson, chief economist at Pantheon Marcroeconomics, said he expects the economy’s growth to rebound to a 3 percent annual rate in the current April-June quarter. Other economists have made similar forecasts.
A variety of factors held back first-quarter growth. Business investment fell at a 2.1 percent rate, with spending on equipment plunging at a 5.5 percent annual rate. Residential construction fell at a 5.7 percent rate. Housing was hit by winter weather and by other factors such as higher home prices and a shortage of available houses.
A widening of the trade deficit, thanks to a sharp fall in exports, shaved growth by 0.8 percentage point in the first quarter. Businesses also slowed their restocking, with a slowdown in inventory rebuilding reducing growth by nearly 0.6 percentage point.
Also holding back growth: A cutback in spending by state and local governments. That pullback offset a rebound in federal activity after the 16-day partial government shutdown last year.
Economists say most of the factors that held back growth in the first quarter have already begun to reverse. Most expect a strong rebound in growth in the April-June quarter.
Analysts say the stronger growth will endure through the rest of the year as the economy derives help from improved job growth, rising consumer spending and a rebound in business investment.
In fact, many analysts believe 2014 will be the year the recovery from the Great Recession finally achieves the robust growth that’s needed to accelerate hiring and reduce still-high unemployment. Many analysts think annual economic growth will remain around 3 percent for the rest of the year.
If that proves accurate, the economy will have produced the fastest annual expansion in the gross domestic product, the broadest gauge of the economy’s health, in nine years. The last time growth was so strong was in 2005, when GDP grew 3.4 percent, two years before the nation fell into the worst recession since the 1930s.
A group of economists surveyed this month by The Associated Press said they expected unemployment to fall to 6.2 percent by the end of this year from 6.7 percent in March.
One reason for the optimism is that a drag on growth last year from higher taxes and deep federal spending cuts has been diminishing. A congressional budget truce has also lifted any imminent threat of another government shutdown. As a result, businesses may find it easier to commit to investments to modernize and expand production facilities and boost hiring.
State and local governments, which have benefited from a rebound in tax revenue, are hiring again as well.
Joel Naroff, chief economist at Naroff Economic Advisors, said he expects job growth to average above 200,000 a month for the rest of the year — starting with the April jobs report, which will be released Friday.
“Those are the types of job gains which will generate incomes and consumer confidence going forward,” Naroff said.
US economy stalls in Q1, inventories and trade weigh
CNBC’s Rick Santelli breaks down the first quarter’s weak GDP numbers. And CNBC’s Steve Liesman and Bruce Kasman, JPMorgan Chase chief economist, provide perspective.
The U.S. economy barely grew in the first quarter as exports tumbled and businesses accumulated stocks at the slowest pace in nearly a year, but activity already appears to be bouncing back.
Gross domestic product expanded at a 0.1 percent annual rate, the slowest since the fourth quarter of 2012, the Commerce Department said on Wednesday. That was a sharp pullback from the fourth quarter’s 2.6 percent pace.
Economists polled by Reuters had expected growth to slow to a 1.2 percent rate. The slowdown partly reflected an unusually cold and disruptive winter, marked by declines in sectors ranging from business spending to home building.
The Commerce Department’s first snapshot of first-quarter growth was released just hours before the Federal Reserve wraps up a two-day policy meeting.
An employee works on the assembly line installing parts on the Duratech 35 V6 engine at the Ford Motor Co. Engine Plant in Lima, Ohio, U.S. on Friday, March 28, 2014.
While harsh weather could partially explain the weakness in growth, the magnitude of the slowdown could complicate the U.S. central bank’s message as it is set to announce a further reduction in the amount of money it is pumping into the economy through monthly bond purchases.
The first-quarter slowdown, however, is likely to be temporary and recent data have suggested strength at the tail end of the quarter.
Economists estimate severe weather could have chopped off as much as 1.4 percentage points from GDP growth. The government, however, gave no details on the impact of the weather.
Inventory growth decelerates
After aggressively restocking in the second half of 2013, businesses accumulated $87.4 billion worth of inventory in the first quarter, the smallest amount since the second quarter of 2013.
That was a moderation from the $111.7 billion amassed in the fourth quarter that has resulted in manufacturers receiving fewer orders. Inventories subtracted 0.57 percentage point from GDP growth in the first quarter.
Surprising things you can’t sell in the US
Trade also undercut growth, taking off 0.83 percentage point, partly because of the weather, which left goods piling up at ports. Exports fell at a 7.6 percent rate in the first quarter after growing at a 9.5 percent pace in the final three months of 2013.
Together, inventories and trade sliced off 1.4 percentage point from GDP growth.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 3.0 percent rate, reflecting a spurt in spending on services linked to the Affordable Healthcare Act.
Spending on goods, however, slowed sharply, indicating that frigid temperatures during the winter had reduced foot traffic to shopping malls. Consumer spending had increased at a brisk 3.3 percent pace in the fourth-quarter.
Harsh weather also undercut business spending on equipment. While investment in nonresidential structures, such as gas drilling, rebounded, the increase was minor.
Investment in home building contracted for a second straight quarter, in part because of the weather. But a rise in mortgage rates over the past year has also hurt.
PLAY VIDEO
A second quarter of contraction in spending on home building suggests a housing recession, which could raise some eyebrows at the U.S. central bank. A bounce back is, however, expected in the April-June period.
US labor costs rise marginally
U.S. labor costs increased at their slowest pace in more than two years in the first quarter, suggesting that slack in the jobs market continues to keep wage inflation subdued.
The Employment Cost Index, the broadest measure of labor costs, rose 0.3 percent after gaining 0.5 percent in the fourth quarter, the Labor Department said on Wednesday. That was the smallest gain since the third quarter of 2011.
Economists polled by Reuters had forecast labor costs increasing 0.5 percent in the first quarter.
In the 12 months through March, costs rose 1.8 percent, the smallest since the second quarter of 2012. They had advanced 2.0 percent in the 12 months through December.
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Story 1: Advanced Estimate of 1st Quarter Real Gross Domestic Product Growth .1% — Obama Recession Begins Blamed on Climate Change — Winter — Videos
CNBC Reacts To Disappointing GDP Growth: “Holy Cow,” “Weak,” “We Are Doing A Double Take”
Obama Administration Under Fire By GOP Over Economy
Fixing the GDP by Changing the Definition of GDP
Measuring GDP using the Income Approach and the Expenditure Approach – HD
* See the navigation bar at the right side of the news release text for links to data tables,
contact personnel and their telephone numbers, and supplementary materials.
Gross Domestic Product: First Quarter 2014 (advance estimate)
Last updated: April 30, 2014 2:32 pm
US growth slows sharply to 0.1% in first quarter
By Robin Harding in Washington
The US economy came near to stalling in the first quarter after one of the coldest winters on record, raising doubts over whether output will meet the US Federal Reserve’s expectations for 2014.
A surge in healthcare spending was all that kept the economy afloat in the first three months of the year, when annualised growth came in at a miserable 0.1 per cent – well below the 1.1 per cent economists were predicting.
The Fed shrugged off the dismal figures, saying growth had accelerated since the first quarter. It reduced or “tapered” its asset purchases by a further $10bn to $45bn a month, underlining its belief that the underlying economy is still on track despite the spell of weakness.
However, the data raise doubts about the Fed’s 2.9 per cent growth forecast for the whole of 2014.
Exports and investment both fell heavily and the economy would have shrunk if President Barack Obama’s healthcare reform had not led to a record increase in healthcare spending.
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“Disappointing news on first-quarter GDP growth, but it was principally due to the weather,” said Paul Ashworth at Capital Economics in Toronto. “We anticipate that second-quarter GDP growth will rebound to 3.5 per cent”
The S&P slipped 0.2 per cent at the start of the day, with technology shares under pressure, but by lunchtime it was slightly higher as markets digested the reasons for the gross domestic product figure. Treasury yields were steady while the dollar remained on the defensive.
Consumption grew at a robust annualised pace of 3 per cent in the first quarter – well ahead of market expectations – and contributed 2 percentage points to overall growth.
But that was offset by a 6.1 per cent annualised fall in investment and a 7.6 per cent fall in exports. Together, they knocked 2 percentage points off total growth so the size of the economy was flat overall.
The main reason for stronger consumption was an unprecedented increase in medical spending – adding 1.1 percentage points to growth – as the expansion of health coverage under the Affordable Care Act began to take effect.
The combination of weather effects and the healthcare changes mean that the initial GDP estimate may be prone to revisions, which often result in big swings in the growth numbers.
On a day packed with economic data, the private payrolls processor ADP said the US economy had added 220,000 private sector jobs in April, ahead of forecasts of 210,000.
The ADP figures will fuel expectations of an acceleration in the official jobs number, due on Friday, which is expected to show total jobs growth of 215,000. The jobs data provide strong evidence that weak GDP in the first quarter did not lead to a total collapse in growth.
Separately, the Bureau of Labour Statistics released its quarterly employment cost index, which showed a rise in wages of just 1.8 per cent in the year to March 2014.
Wage rises are expected to be the first signal of inflation that would force the Fed to raise interest rates, so the subdued reading will encourage the central bank to keep monetary policy looser for longer.
The Fed will not publish economic forecasts this month and there is no press conference from chairwoman Janet Yellen.
http://www.ft.com/cms/s/0/2dea31bc-d062-11e3-af2b-00144feabdc0.html#axzz30QUTojvz
Five things you must know about US growth
By Robin Harding in Washington
There are two reasonable responses to news of the US economy’s dismal 0.1 per cent annualised growth in the first quarter of 2014: either panic, or else curse the vagaries of economic data, and wait for revisions to straighten out the rather jumbled numbers. Consumption came in stronger than expected, while investment and exports were dreadful, making it hard to tell a clear story about the state of the world’s largest economy. Here are five takeaways:
(1) Last of the winter weather
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First-quarter gross domestic product is the last release that covers a freezing US winter – all other data from January and February are ancient history now.
Almost every area of weakness could be chalked up to weather: goods consumption, up just 0.4 per cent at an annualised pace, because buyers stayed away from the shops; residential investment, down 5.7 per cent, because of delayed construction; and exports, down 7.6 per cent, because manufacturers could not ship via snow-clogged roads and railways.
More up-to-date data, such as non-farm payrolls, suggests the economy picked up in March and April.
(2) Watch out for revisions and a second quarter rebound
The first release of GDP is always prone to large revisions. This time, though, changes are especially likely. A lot of data are unavailable when the Bureau of Economic Analysis makes its first estimate, so the 0.1 per cent number will be using a lot of figures from January and February, which were hardest hit by the weather, with more numbers from March – which was less affected – still to arrive.
Even if revisions do not move the numbers up, there is likely to be a rebound in the second quarter, as some weather-affected activity was delayed but not lost. Morgan Stanley’s tracking estimate for the second quarter is annualised growth of 3.5 per cent.
(3) The Affordable Care Act rescued the numbers
It says nothing about the merits of President Barack Obama’s healthcare reform, but if the ACA had not existed, then GDP would have fallen. Healthcare spending contributed a massive 1.1 percentage points to growth, so without it, the headline GDP figure would have been minus 1 per cent.
In the national accounts, expansion of the Medicaid healthcare programme for the poor and subsidies for people buying health insurance count as social benefits, and thus boost personal incomes. When people actually consume health insurance or medical services it counts as consumption and shows up in the main expenditure-based version of GDP.
(4) . . . but that spending may yet be revised away too
The BEA does not actually know yet how much newly insured people are spending on medical care. This is yet another estimate. What the BEA says is: “For preliminary estimates made before the final source data are available, BEA will take account of available information on Medicaid benefits, ACA insurance exchange enrolments, and other related information.”
This suggests the BEA’S estimates of healthcare consumption are heavily influenced by the number of sign-ups on insurance exchanges and theoretical expansions in Medicaid coverage. If actual spending does not match the uncertain estimates, this bit of GDP could be revised down.
(5) It is right to worry, at least a little
All the volatility in the numbers makes it hard to take a clear signal, but all the same, there are reasons to worry in this release. The US Federal Reserve’s economic scenario for 2014 involves an acceleration in growth. Housing and business investment are the components of GDP most likely to bring that.
It is bad news, therefore, to have business investment off by 5.5 per cent at an annualised pace and housing investment down by 5.7 per cent. Even with the hit from the weather, this is more consistent with another year of mediocre 2 per cent growth, than the forecast acceleration towards 3 per cent.
http://www.ft.com/intl/cms/s/0/14b03c1a-d06b-11e3-af2b-00144feabdc0.html#axzz30QUTojvz
US economy slowed to 0.1 percent growth rate in Q1
By MARTIN CRUTSINGER
WASHINGTON (AP) — The U.S. economy slowed drastically in the first three months of the year as a harsh winter exacted a toll on business activity. The slowdown, while worse than expected, is likely to be temporary as growth rebounds with warmer weather.
Growth slowed to a barely discernible 0.1 percent annual rate in the January-March quarter, the Commerce Department said Wednesday. That was the weakest pace since the end of 2012 and was down from a 2.6 percent rate in the previous quarter.
Many economists said the government’s first estimate of growth in the January-March quarter was skewed by weak figures early in the quarter. They noted that several sectors — from retail sales to manufacturing output — rebounded in March. That strength should provide momentum for the rest of the year.
And on Friday, economists expect the government to report a solid 200,000-plus job gain for April.
“While quarter one was weak, many measures of sentiment and output improved in March and April, suggesting that the quarter ended better than it began,” said Dan Greenhaus, chief investment strategist at global financial services firm BTIG.
Still, the anemic growth last quarter is surely a topic for discussion at the Federal Reserve’s latest policy meeting, which ends Wednesday afternoon. No major changes are expected in a statement the Fed will release. But it will likely announce a fourth reduction in its monthly bond purchases because of the gains the economy has been making. The Fed’s bond purchases have been intended to keep long-term loan rates low.
In its report Wednesday, the government said consumer spending grew at a 3 percent annual rate last quarter. But that gain was dominated by a 4.4 percent rise in spending on services, reflecting higher utility bills. Spending on goods barely rose. Also dampening growth were a drop in business investment, a rise in the trade deficit and a fall in housing construction.
The scant 0.1 percent growth rate in the gross domestic product, the country’s total output of goods and services, was well below the 1.1 percent rise economists had predicted. The last time a quarterly growth rate was so slow was in the final three months of 2012, when it was also 0.1 percent.
Ian Shepherdson, chief economist at Pantheon Marcroeconomics, said he expects the economy’s growth to rebound to a 3 percent annual rate in the current April-June quarter. Other economists have made similar forecasts.
A variety of factors held back first-quarter growth. Business investment fell at a 2.1 percent rate, with spending on equipment plunging at a 5.5 percent annual rate. Residential construction fell at a 5.7 percent rate. Housing was hit by winter weather and by other factors such as higher home prices and a shortage of available houses.
A widening of the trade deficit, thanks to a sharp fall in exports, shaved growth by 0.8 percentage point in the first quarter. Businesses also slowed their restocking, with a slowdown in inventory rebuilding reducing growth by nearly 0.6 percentage point.
Also holding back growth: A cutback in spending by state and local governments. That pullback offset a rebound in federal activity after the 16-day partial government shutdown last year.
Economists say most of the factors that held back growth in the first quarter have already begun to reverse. Most expect a strong rebound in growth in the April-June quarter.
Analysts say the stronger growth will endure through the rest of the year as the economy derives help from improved job growth, rising consumer spending and a rebound in business investment.
In fact, many analysts believe 2014 will be the year the recovery from the Great Recession finally achieves the robust growth that’s needed to accelerate hiring and reduce still-high unemployment. Many analysts think annual economic growth will remain around 3 percent for the rest of the year.
If that proves accurate, the economy will have produced the fastest annual expansion in the gross domestic product, the broadest gauge of the economy’s health, in nine years. The last time growth was so strong was in 2005, when GDP grew 3.4 percent, two years before the nation fell into the worst recession since the 1930s.
A group of economists surveyed this month by The Associated Press said they expected unemployment to fall to 6.2 percent by the end of this year from 6.7 percent in March.
One reason for the optimism is that a drag on growth last year from higher taxes and deep federal spending cuts has been diminishing. A congressional budget truce has also lifted any imminent threat of another government shutdown. As a result, businesses may find it easier to commit to investments to modernize and expand production facilities and boost hiring.
State and local governments, which have benefited from a rebound in tax revenue, are hiring again as well.
Joel Naroff, chief economist at Naroff Economic Advisors, said he expects job growth to average above 200,000 a month for the rest of the year — starting with the April jobs report, which will be released Friday.
“Those are the types of job gains which will generate incomes and consumer confidence going forward,” Naroff said.
http://apnews.myway.com/article/20140430/us-economy-gdp-09b1567225.html
US economy stalls in Q1, inventories and trade weigh
The U.S. economy barely grew in the first quarter as exports tumbled and businesses accumulated stocks at the slowest pace in nearly a year, but activity already appears to be bouncing back.
Gross domestic product expanded at a 0.1 percent annual rate, the slowest since the fourth quarter of 2012, the Commerce Department said on Wednesday. That was a sharp pullback from the fourth quarter’s 2.6 percent pace.
Economists polled by Reuters had expected growth to slow to a 1.2 percent rate. The slowdown partly reflected an unusually cold and disruptive winter, marked by declines in sectors ranging from business spending to home building.
Read MoreUS private job creation booms in April: ADP
The Commerce Department’s first snapshot of first-quarter growth was released just hours before the Federal Reserve wraps up a two-day policy meeting.
While harsh weather could partially explain the weakness in growth, the magnitude of the slowdown could complicate the U.S. central bank’s message as it is set to announce a further reduction in the amount of money it is pumping into the economy through monthly bond purchases.
The first-quarter slowdown, however, is likely to be temporary and recent data have suggested strength at the tail end of the quarter.
Economists estimate severe weather could have chopped off as much as 1.4 percentage points from GDP growth. The government, however, gave no details on the impact of the weather.
Inventory growth decelerates
After aggressively restocking in the second half of 2013, businesses accumulated $87.4 billion worth of inventory in the first quarter, the smallest amount since the second quarter of 2013.
That was a moderation from the $111.7 billion amassed in the fourth quarter that has resulted in manufacturers receiving fewer orders. Inventories subtracted 0.57 percentage point from GDP growth in the first quarter.
Trade also undercut growth, taking off 0.83 percentage point, partly because of the weather, which left goods piling up at ports. Exports fell at a 7.6 percent rate in the first quarter after growing at a 9.5 percent pace in the final three months of 2013.
Together, inventories and trade sliced off 1.4 percentage point from GDP growth.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 3.0 percent rate, reflecting a spurt in spending on services linked to the Affordable Healthcare Act.
Read MoreWhy the slowdown in US economy may be temporary
Spending on goods, however, slowed sharply, indicating that frigid temperatures during the winter had reduced foot traffic to shopping malls. Consumer spending had increased at a brisk 3.3 percent pace in the fourth-quarter.
Harsh weather also undercut business spending on equipment. While investment in nonresidential structures, such as gas drilling, rebounded, the increase was minor.
Investment in home building contracted for a second straight quarter, in part because of the weather. But a rise in mortgage rates over the past year has also hurt.
A second quarter of contraction in spending on home building suggests a housing recession, which could raise some eyebrows at the U.S. central bank. A bounce back is, however, expected in the April-June period.
US labor costs rise marginally
U.S. labor costs increased at their slowest pace in more than two years in the first quarter, suggesting that slack in the jobs market continues to keep wage inflation subdued.
Read MoreChina to overtake US economy; India trumps Japan
The Employment Cost Index, the broadest measure of labor costs, rose 0.3 percent after gaining 0.5 percent in the fourth quarter, the Labor Department said on Wednesday. That was the smallest gain since the third quarter of 2011.
Economists polled by Reuters had forecast labor costs increasing 0.5 percent in the first quarter.
In the 12 months through March, costs rose 1.8 percent, the smallest since the second quarter of 2012. They had advanced 2.0 percent in the 12 months through December.
http://www.cnbc.com/id/101627906
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