First Quarter GDP Revised Higher, But Still Paltry

Did you ever get excited about Gross Domestic Product running just over 1 percent? If your answer is no, even if it is understandable, Tuesday may be an exception. First quarter GDP was given its final revision up to a gain of 1.1%.

The prior revision was a gain of only 0.8%.  Bloomberg was calling for a gain of 1.0%, with an Econoday range of 0.9% to 1.2%. Dow Jones (Wall Street Journal) was calling for a 1.0% gain as well, and ditto for Reuters.

The deflator, or the price index, actually dropped to 0.4% from the prior revision of up 0.6%. Bloomberg was calling for the 0.6% number to remain static. Unfortunately, that is just another incidence of stubbornly low inflation.

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Tuesday’s key revisions showed strength in net exports and less nonresidential fixed investment weakness. Exports added more than one-tenth of a point on a net basis exports were higher in the first quarter and while imports were weak.

Another upward revision was seen in software, which helped to mitigate some of the weakness in the nonresidential investment. The component for personal consumption expenditures was lowered by more than two-tenths due to weaker spending for services. Residential investment added roughly a half-point to the first quarter GDP reading.

Inventories were a two-tenths of a point drag on GDP, but that could mean more stocking needs to be seen ahead.

Tuesday’s report may sound alright on the surface, but investors and economic watchers need to understand that this is still dismally slow. This sort of growth should not be conducive to massive job growth, and the economy is nearing full employment (if you don’t count the uncounted).

The uncertainty around the Brexit impact will weight on estimates, but the bulk of that will be in the third and fourth quarters as the Brexit news hit with only one week left in the second quarter.

Estimates still seem to be running closer to 2% GDP growth for the U.S. in the second quarter. That just feels high, and maybe almost like it is a number that is a goal rather than a number that is based upon sales and earnings trends which have been reported throughout the quarter.