GDP Q1 Advance Estimate At 2.5%: A Welcome Increase From Q4 But Below Expectations

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by: Doug Short

Friday the Advance Estimate for Q1 GDP came in at 2.5 percent, a substantial improvement from the 0.4 percent in Q4 2012 although a bit below mainstream forecasts. The latest WSJ survey of economists had a consensus of 3.1 percent.

Here is an excerpt from the Bureau of Economic Analysis news release:

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 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 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.... The "second" estimate for the first quarter, based on more complete data, will be released on May 30, 2013.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, residential investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased....

The acceleration in real GDP in the first quarter primarily reflected an upturn in private inventory investment, an acceleration in PCE, an upturn in exports, and a smaller decrease in federal government spending that were partly offset by an upturn in imports and a deceleration in nonresidential fixed investment.

Motor vehicle output added 0.24 percentage point to the first-quarter change in real GDP after adding 0.18 percentage point to the fourth-quarter change. Final sales of computers subtracted 0.01 percentage point from the first-quarter change in real GDP after adding 0.10 percentage point to the fourth-quarter change. [Full Release]

Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).

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Here is a close-up of GDP alone with a line to illustrate the 3.2 average (arithmetic mean) for the quarterly series since the 1947, with the latest GDP revisions, this number had been at 3.3 for 14 quarters, but slipped to 3.2 in Q2 of 2012 year. I've also plotted the 10-year moving average, currently at 1.7. The current GDP is now about midway between the two.

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Here is the same chart with a linear regression that illustrates the gradual decline in GDP over this timeframe.

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And for a bit of political trivia, here is a look at GDP by party in control of the White House and Congress.

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In summary, the Q1 GDP Advance Estimate of 2.5 percent is a welcome improvement over the 0.4 percent of previous quarter even though mainstream economists were looking for something closer to 3.0 percent.