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Q1 GDP Declines; ‘Marked Turnaround’ Expected for Q2

Economic news went from bad to worse this week with a new report suggesting the nation’s output declined in the first quarter for the first time since 2011.

The Bureau of Economic Analysis (BEA) released Thursday its second look at gross domestic product(GDP) for Q1, estimating an annualized 1.0 percent decline as private inventory investment dropped further than originally reported. BEA’s first estimate, released late April, put growth at an estimated annual rate of 0.1 percent compared to Q4’s final rate of 2.6 percent.

Analysts surveyed by Econoday had forecast a negative annual growth rate of 0.5 percent.

Besides private inventory investment, BEA says the first quarter suffered from decreases in exports, nonresidential and residential fixed investment, and state and local government spending. On the bright side, those negative contributions were offset in part by an improvement in consumer spending.

In a response to the latest release, Paul Ashworth, chief U.S. economist for Capital Economics, said it’s important to keep perspective, especially with incoming data pointing to a “marked turnaround” in second-quarter growth.

“For those worried about a recession, it’s worth remembering that employment increased by nearly 300,000 in April and jobless claims dropped to 300,000 last week,” Ashworth said. “Those numbers point to a recovery gathering some real momentum at last.”

A key question is whether the Federal Reserve will hold such an optimistic view. Over the last few months, the voting members of the Federal Open Market Committee have opted to continue slashing the Fed’s monthly asset purchases despite a noticeable slowdown in economic expansion. The next committee meeting is scheduled for mid-June, a week ahead of BEA’s third and final estimate for first-quarter GDP.


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